Sudden expenses pushing Canadians into debt
(TORONTO, ON) – Household debt might be near record highs and the saving rate might be in the gutter, but that didn’t stop nearly a third (31 per cent) of Canadians from adding on more debt in the past year, according to a poll from CIBC. The poll also found that two-thirds of Canadians are comfortable with the amount of debt they have.
Those who took on more debt cited reasons ranging from what could be considered “good debt” like education (15%) or buying a home (9%), all the way to what many financial experts would consider “bad debt” like luxury items and vacation (17%).
While Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, is not thrilled about Canadians going into debt for vacations, he’s most concerned about what he calls “out of the blue” reasons for going into debt – moments when “life happens” and we are stuck with a bill that we did not expect.
Examples of “out of the blue” debt from the survey include:
- Unexpected expenses (19%)
- Medical expenses (9%)
- Loss of a job (8%)
“In credit counselling, we often see people failing to plan for these events, and maybe it’s human nature to ignore things that ‘might’ happen,” says Schwartz. “But I’ve seen enough cases to know that something will happen, and we need to be prepared with that assumption.”
As for the majority of Canadians (66%) who are comfortable with their debt, Schwartz is worried that they aren’t being proactive enough while they have the chance.
“What would it take for you debt to start making you uncomfortable?” asks Schwartz. “Canadians need to identify what those trigger points might be and nip them in the bud.”
The team at Consolidated Credit has put together an action plan to keep Canadians comfortable with both the debt they have now, as well as any debt from unexpected expenses that might occur when life happens:
- Face the facts: It’s not paranoia; it’s common sense. A financial emergency will happen and you need an emergency savings account to take care of sudden expenses that come with unemployment, car trouble, medical procedures, or urgent home repair, to name a few. Nobody is financially bulletproof.
- Make a debt-reduction strategy: You’re experiencing a false sense of comfort if you’re merely making your minimum monthly payments. Focus on aggressively repaying the debt with the highest interest rate first, then move to the next-highest rate. The next best option is to work from the bottom and pick off smaller debts while building momentum.
- Build an emergency savings account: An ideal emergency fund would cover three to six months’ worth of living expenses. That might sound like a lofty goal, but it’s something to work toward. Automate contributions from your paycheque so that you pay yourself first. Start with five per cent of your income and gradually increase it when you are able.
- Make a budget and stick to it: Putting extra money toward debt repayment and savings accounts is only possible if you know exactly where your money is going. Follow Consolidated Credit’s recommended budget percentages and maximize your money. Use our free budgeting app to stick to your plan. It might sound restrictive, but it is actually liberating to know that you are meeting your financial obligations.
- Seek help if you need it: Canadians often keep their finances to themselves and might be too proud to seek help. If you see no way out of financial peril, you need to talk to a trusted friend, financial advisor, or a credit counsellor. Sometimes all you need are a few words of wisdom.
About Consolidated Credit Counseling Services of Canada, Inc.:
Consolidated Credit Counseling Services of Canada is a national non-profit credit counselling organization that teaches consumers about personal finance.
For more information or to request an interview with Jeffrey Schwartz, please contact:
Jacob MacDonald, Manager of Community and Public Relations, Consolidated Credit Counseling Services of Canada, Inc., T: 416-915-7283 ext.1041 C: 647-390-5253 F: 416-915-5200 E: firstname.lastname@example.org