Bank of Canada Governor Mark Carney has warned that Canadians are carrying too much debt. On Monday Statistics Canada released a report showing that the ratio of household debt-to-disposable income reached the highest level on record in the third quarter, at 148.1%, which is 6.7 per cent higher than last year. This means, in simple terms, that if you earn $10,000 in disposable income per year, you are carrying almost $15,000 in debt.
That may not seem like a high number, but it’s the highest number in Canadian history, and it’s even higher than the 147.2% level in the United States, which is a scary statistic given the serious economic problems faced by Americans.
So, what does this mean to you?
To start , as I have already commented in the press, I find it amusing that the Bank of Canada, which has kept interest rates artificially low to encourage us to borrow, is now worried that we are borrowing too much.
However, as a bankruptcy trustee I agree that too much debt is a problem. So, what can you do about it?
First, start taking steps now to reduce your debt. Make a budget, and look for ways to cut expenses, and then use those savings to start repaying your debt.
Next, spend less. There are lots of resources to help you spend less at Christmas, so you can avoid debt and have a stress free Christmas. Otherwise you risk having it all in December, but losing it in February when the Christmas bills come in.
Third, have a plan. Before you go shopping, decide who you need to buy for, and what you can afford to spend, and don’t overspend.
Finally, pay cash, or use debit. If you don’t borrow, you can’t get in to debt.
What do you do if you already have more debt than you can handle? Review your debt management options, and consider filing a consumer proposal or personal bankruptcy if that’s the appropriate solution to your financial problems.
The Bank of Canada Governor is correct: household debt in Canada is a problem, and we should deal with it now, before the situation becomes even worse.
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Tags: Canada, Household Debt
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