Average Canadian debt: debt shouldn’t be the new normal

Average Canadian debt is sitting at dangerous levels due to the rising cost of living and a growing preference to buy now and pay later. While use of mortgages went down in Q1 of 2019, consumer debt load is rising through use of auto loans and credit cards.

  • According Equifax Canada, average debt per consumer (including mortgages) was $71,300. Canadians who do not have a mortgage have an average debt of $23,496.
  • This increase is up 3.5 per cent from 2018.
  • For every dollar of disposable income someone has, he or she owes about $1.78. This puts the debt-to-income ratio at ~177 per cent.

“Unfortunately, sky-high household debt levels continue to sit well out of the range of what is realistically manageable. According to these statistics, the average consumer is taking on debt as a means to an end,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“The rising interest rates means household debt in Canada just got more expensive. This puts a greater strain on family finances and put more people in financial jeopardy,” says Schwartz.

Don’t wait for your own personal financial crisis to strike before you do something. Take action now to reduce your debt and reduce your vulnerability.

What’s your debt-to-income ratio?

Are you curious why you couldn’t procure that new credit card? It might be due to your debt-to-income ratio.

Did you know that when you are applying for new credit, your debt-to-income ratio generally has to be 40 per cent or below? Otherwise, creditor see you as less reliable, and more of a liability.

Before you have someone check your credit (and possibly hurt it more) calculate your debt-to-income ratio by finding the sum of your existing monthly payments, including:

  • Student loans
  • Auto loan
  • Cell phone
  • Mortgage debt or rent
  • Credit cards bills
  • Medical debt
  • Other recurring expenses (energy, groceries, etc.)

Take that number and divide it by your monthly household income. How high is it? If you find that you are living paycheque to paycheque and not getting anywhere paying down your debt, your high debt-to-income ratio is probably why.

If this is the case, perhaps now is the time to consider credit counselling or debt consolidation.

Stop taking on debt. Today.

To bring your household debt down to more manageable levels, you obviously need to take aggressive steps to pay it down. Even the best-looking budget is ineffective if you do not commit to it.

Have you ever heard the expression “stop the bleeding?”

Basically, a wound cannot begin to heal if it’s still bleeding. Likewise, one of the most important steps that you can take is to stop accumulating more debt. Adding to an already expensive pile of debt ensures that you’ll never be debt-free.

Change your attitude towards debt

Were you raised with a scarcity mindset?  Or were you taught that relying on credit cards is common practice? Whether you have a negative outlook on money or if you’ve been subscribing to the “buy-now-pay-later” mentality, it’s time to change your attitude towards spending.

If you resent your debt, it’s natural. But it’s also because you put yourself there. At the same time, you have the power to get yourself out. Dust yourself off and make the decision to make changes now.

Do you have room for savings?

Average Canadian debt is also the result of poor planning. Many people don’t have a healthy savings account, much less an emergency fund. Reduce your dependence on credit cards or taking out loans by building a savings fund specifically for emergencies.

While we don’t know when an emergency is going to strike, extra debt doesn’t have to be an added component.

If you avoid building up savings for catastrophes, you’ll likely need to turn to debt in an, keeping the debt cycle churning.

Find ways to cut back

Making some small lifestyle changes and living simply can help bring your household expenses down a great deal. Believe it or not, you can make small changes today that will help in the long run.

What are some of your worst spending habits? Oftentimes, small purchases contribute to your debt including:

  • Buying coffee daily
  • Going out to lunch daily
  • Getting drinks with friends regularly
  • Entertainment expenses and dates
  • Using your car instead of walking, biking, taking a bus, or train

It’s not that you have to cease in these areas entirely, but you must place them on your budget. Set a household budget and stick to it to remain within your means. Account for everything you spend money on to make sure there is space for it in the budget.

What about those big expenses like semi-annual auto insurance, a new car, or house? Plan for them now. Focus on saving up before you spend for big ticket items. The money you save on expenses can go directly to your debts or savings

Just because the average Canadian is trending upward, you don’t have to join the crowd. Call us at or check out our online debt analysis.

 

Reviewed by :
Benjamin Allen
Benjamin Allen [email protected]

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