Debt – The Good, the Bad, and the Ugly

Is my Debt Good, Bad or Ugly Debt?

Debt is not bad in of itself.

In fact, consumer debt has been one of the great dynamic factors in the Canadian economy.

Governments encourage consumers to consume because we need a high level of domestic consumption for both stability and growth.

Status of consumer debt in Canada today:

Despite warnings by the Bank of Canada that the country’s economy is in for a bumpy ride this year, household debt grew by 4.6 per cent in January, 2015 a new report says.

It was among the fastest pace of household credit expansion in the past two years.

The country’s household savings rate was headed to a five-year low in the final quarter of last year, Statistics Canada said this week.

Canada’s household debt-to-income ratio rose more than any other country outside of Greece between 2007 and mid-2014, according to a recent analysis by McKinsey Global Institute.

It hit a record high of 163 per cent in the third quarter of last year.

Canada is one of a few countries in the Western world where household debt burdens are higher than they were in the United States at the peak of the global credit bubble, McKinsey said.

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Good debt is the kind of debt that helps us lead a better, more rewarding, life sooner than if we had to first save all the money to purchase a particular commodity.

Not many of us could afford to buy a house or a car if we could not borrow money to do so.

Debt incurred to start a business or to pay for education is also considered to be “good” debt.

Bad debt is debt incurred for short-term pleasure, such as a trip, expensive jewellery, or clothes.

Ugly debt is debt you cannot pay off quickly.

It continues to bear a high rate of interest — in some cases, up to 21 percent.

Any debt can be an ugly debt if you let it take control of you.

For example, a debt incurred for education can turn into an ugly debt if you do not complete your course of studies or you complete your course of studies but cannot earn enough money to service and then pay down the debt.

Using your credit card to finance a major purchase such as furniture can also turn into an ugly debt very quickly if you cannot make the payments.

If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.