In Canada, high debt is the “new normal” and this is a worrying situation to be in.
Even though high debt is becoming more and more common, people do not seem to be concerned with the amount of debt that they have and they simply accept it.
This means that people are far more likely to end up with serious debt problems in the future.
Statistics show that the average Canadian has debts that equal 150% of their annual expendable income.
That means that if you earn $20,000 a year, you are likely to have debts of at least $30,000.
That’s just the average debt, and there are plenty of people that have much higher debts.
The problem is, most people consider this level of debt to be normal and they don’t see it as a sign that they need to change their financial situation and consider looking into debt relief options.
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In fact, over 60% of Canadians surveyed said that they were not concerned about their level of debt.
This may be, in part, because interest rates are low at the moment.
In some cases, high debts are not necessarily a problem.
Your mortgage is a prime example of this because, provided you can afford to keep up with payments, it is considered a “good debt”.
Although you owe a lot of money, the debt is not causing you financial issues and the house increases in value, so you will recoup that investment.
However, it’s important to remember that house prices are not guaranteed to keep rising and in some places, they have already started to decrease.
When this happens, your “good debt” turns into “bad debt” overnight, and you can quickly find yourself in a tough financial position.
The reason that many people do not consider their debt to be a problem is that they do not understand how quickly a debt can turn from good to bad.
They assume that, as long as they can make the payments every month, they’re fine.
Unfortunately, that isn’t the case at all because any changes to your income can quickly lead to financial disaster.
People also fail to consider what will happen if interest rates start rising.
If your debt to income ratio is poor and most of your income goes towards your financial obligations each month, even a small increase in interest rates may leave you unable to pay your debts.
After a few months of increased interest and charges for missed payments, you will soon be in a very dangerous financial position.
A lack of emergency funds is also a big problem that often contributes to high debts.
Although 55% of Canadians say that they are confident that they could find $2000 if they needed it in an emergency, most of them said that they would borrow some or all of the money.
While most people said that they would take some of the money from savings, they also admitted that they would have to rely on credit cards, lines of credit, or loans to find the rest.
What that really means is that the majority of people do not have emergency funds to deal with unexpected bills and they would be forced to build more debt.
This is a huge problem because life is rarely predictable and we all get hit with unexpected expenses, like car or home repairs.
If you are unable to pay the bills and you already have a lot of debts, more borrowing can quickly put you in a position where you are unable to meet your financial obligations each month.
This lack of emergency funds is not necessarily the fault of those people and it isn’t always down to poor financial planning.
The economy has been in a difficult position since the 2008 crash and when times are tough, it is difficult to save.
But regardless of the reasons, it is important to recognize that most people are very vulnerable in a financial emergency and this is a big issue that contributes to debt that can quickly spiral out of control.
Many people do not take action to resolve their debt issues until they are forced to because it has become so normalized.
People don’t see a problem with being reliant on debt and even if a large portion of their income goes to debt payments every month, they think that they’re fine as long as they can make the payments.
It’s only when they are unable to meet their financial obligations that they realize that there is a problem, and by that point, they have already built up huge debts.
If you find yourself in this situation, you may need to consider debt relief options like bankruptcy or consumer proposals.
However, if you take action now, you may be able to avoid this.
If you have a relatively good income, consider rewriting your budget and increasing debt payments to clear your existing debts as quickly as possible.
Debt consolidation loans are an effective way to cut interest payments and make it easier to pay down your debts.
While you are clearing existing debts, it’s also important that you start putting money aside in savings.
Having an emergency fund in place will protect you in the event of a financial emergency so you do not need to rely on borrowing again in the future.
In Canada, high debt is the “new normal” and, unfortunately, some people are already past this point and they will not be able to realistically pay off their debts, even if they strip their budget to the bare essentials and take out a consolidation loan.
However, there are still debt relief options that can help you start over, like bankruptcy and consumer proposals.
If you are in a difficult financial situation and you are struggling to pay your debts, we are here to help.
We can take you through all of the different debt relief solutions available to you and advise you on which is best for your situation, so get in touch today.
You can reach us on the phone or fill out an evaluation form and we will get back to you.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?