Is Debt Worth the Risk?
October 17, 2017 | British Columbia
When you think about it, debt is a lot like gambling. When you roll, the dice, sometimes you walk away with money in your pocket and other times you take a financial blow. The same can be said about debt.
There is an element of risk present when you spend more than you make. What many debtholders don’t take into account is “what if”. What if one of the myriad economic forces that is beyond your control changes? Are you willing to roll the debt dice? Maybe 2017 is the year to break your debt habit.
- According to Statistics Canada the average debt-to-income ratio in Canada is at 167 per cent. That means for every dollar you make, you owe $1.67. It doesn’t take long to sink swimming in that kind of debt.
- Canadians spend nearly 15 percent of their after tax income servicing their debt.
- “High Risk” households (households where the debt-to-income ratio exceeds 350 percent) have almost doubled since 2008 (prior to the global financial crisis) from 4 percent to 8 percent, according to the Bank of Canada.
“Canadians continue to put themselves at risk by ramping up their debt. Low interest rates mean more people can buy more “stuff”. Even if people are loading up on so-called “good debt” (i.e. housing and home improvements) it’s not good debt if you can’t comfortably afford it.” says Jeff Schwartz, executive director at the Consolidated Credit Counseling Services of Canada.
“This vulnerability is compounded by the fact that the average consumer doesn’t have control of the variables that are currently allowing them to afford to take on these debts. If you are already stretched too thin, it doesn’t take a strong economic headwind to topple that house of cards.”
The good news for debtholders is that they can decide to take control of their debt. Is 2017 the year to break your debt habit and pay down to live happily ever after, rather than buy now, pay later? Still not convinced? What if you experienced any of these in 2017:
Interest rates and your mortgageThe low interest rate environment has lulled homeowners into a false sense of security. Even though property prices have skyrocketed in some centres, consumers may not see those gains because they have taken out those increases in the form of home equity lines of credit and have borrowed to their absolute max. With the increase in rates going up, what will that mean to your debt service dollars? Are you already spending more than you make?
Life happensSure, you’re the employee of the month, but does that mean your job is safe for the whole year? One of the sad realities of our economic times is that people frequently experience job loss, whether from downsizing or other circumstances.
The other unfortunate issue that could seriously hinder or remove your income is illness. How long would you be able to pay your current debts without your income? Do you have any savings or a “Rainy Day” account to carry you until things improve?
InflationWithout getting into the nitty gritty of the economics, consumers feel the pinch of inflation in paying for their daily goods- like gas and food. Food in particular is expensive now and is expected to continue to increase throughout this year; chances are your income won’t grow at quite the same rate. The long and short of it, is that this expense will take a bigger bite out of your take home pay, leaving you with even less to service your debts.
Are you ready to take control of your debts? Is 2017 the year to get your plan in place and move ahead?
For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at jamati budget lounge and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free No at 1-844-329-3834 and speak with a trained credit counsellor from Consolidated Credit.
