Canada has some of the highest consumer debt in the world. With record-low interest rates, easy access to credit and a rising cost of living, it’s no wonder we’re saddled with debt.
According to the Bank of Canada, the average debt held by Canadians, excluding mortgages, is $20,759. That’s a lot of money spent on things we likely don’t actually need. The worst part about it is that many Canadians are not able to pay back their debts, which is why we’ve seen a major increase in the number of bankruptcies and consumer proposals.
This begs the question, if we’re unable to pay for these things, and we don’t actually need them, then why are we in debt in the first place?
Here are the top 5 leading causes of debt in Canada (and what to do if you need help):
Living on credit
When you think of debt, credit cards are likely the first thing to pop to mind. It’s easy for Canadians to get into credit card debt when they start using it like a debit card. If you don’t actually have the money in your chequing account to immediately pay for your credit card purchase, then you shouldn’t put it on credit.
Credit cards have a way of luring people in through promises of rewards and cash back, but the reality is, most people always end up carrying a balance at the end of each month. And with interest rates of 20% and a minimum payment requirement of just $10, you could find yourself living in credit card debt forever.
If you’re not diligent, it’s easy to end up owing a great deal of money through bad spending habits. Eating too much take out, buying expensive clothing or shopping online can slowly but surely add up. Before getting a credit card, it’s important to educate yourself on how they work.
Living beyond your means
Thanks to credit cards, it can be easy to spend money we don’t have. The ‘Keeping up with the Joneses’ mentality has been around for decades, but thanks to social media like Facebook and Instagram, it appears it’s not going away anytime soon. With low salaries and a sky-high cost of living, many young people are finding themselves living beyond their means just to show off on social media, or to “live their life to the fullest”. The scary part is that these habits can have dangerous repercussions and amount to serious debt.
Missing debt repayments
Debt has a way of creeping up on us and spiralling out of control. This is particularly true if you have debt with high interest rates, such as payday loans or credit cards. Even just one missed payment can trigger a late fee that not only affects your credit score, but increases your debt levels, putting you in an even worse situation than before. This can ultimately make it harder to pay down your debt because it keeps growing.
Not having any savings
Sometimes we can face financial hardship through the loss of a job, a medical emergency or even divorce. It’s often these life situations that are the leading causes of financial problems. Usually in these types of situations, people find themselves having to come up with extra money to pay the bills. If you don’t have any savings to fall back on during these difficult times, usually you’ll end up turning to loans. This ultimately increases your overall debt. If you don’t find a way out of a tricky financial situation fast, then this debt rarely gets paid off.
Lack of financial literacy
It’s unfortunate, but most of us weren’t taught financial education in school. Only now is the government starting to realize what an important tool it is to have in your arsenal. Without financial literacy, Canadians lack the basic understanding of how to make a budget, how credit scores are affected and why it’s important to pay down high-interest debt. It’s these basic personal finance principles that help us make sound decisions and avoid us from getting into debt.
What to do if you need help
Getting out of debt isn’t something you have to do on your own. As the above examples show, many people just like you end up in debt even with the best intentions. Debt counselling services can help you get your debt under control and help you pay it off for good. If you have debt problems and are having difficulty getting them resolved contact our credit counsellors today for a free consultation.