Clark Wealth Management Group - ScotiaMcLeod Fredericton

Finances getting tight? Read on …..

"If you find yourself in a hole, the first thing to do is stop digging"

As clear as this advice is, as it relates to personal indebtedness of Canadians, the message is apparently not getting through.

Despite warnings of the problem of growing consumer debt from credible organizations like the Certified General Accountants Association of Canada and the Bank of Canada, some Canadians remain in denial.

Not only are we now collectively further in debt than we have ever been at about $1.3 trillion at last count, but the growth of household debt compared to income is also at new records.

The CGA Association report highlights four main concerns:

While many may want to blame the big bad banks or the credit card companies for this situation, borrowing money is a personal choice. The amount we owe is the amount we choose to owe. While credit granting organizations have a role to play in helping us understand and manage how much we owe, in the end it is our responsibility.

The Bank of Canada’s Governor Carney recently took time to point out that this higher level of debt will become more problematic as economic conditions normalize and interest rates increase – increasing the cost of servicing a growing debt.

For someone who owes $250,000 and pays 2.50% (just slightly above prime) for a variable rate, just covering the interest each month costs $513. If rates increase to say 5.00%, the monthly interest cost jumps to $1,027. If people get spooked and jump to a fixed rate loan at that point, it would be at an even higher rate. Interest costs each month on that same debt at 7.50% jump to $1,541. Any payments to reduce the amount owing would be over and above these amounts.

As I’ve suggested before, the best use of this extraordinary period of low interest rates is to pay more money on the principal owing, not to borrow more. If you do borrow more, do so to acquire an asset that you either need to have or that will appreciate in value – preferably both.

If you find yourself under financial stress and having to borrow to meet ongoing expenses already, The Government of Canada – Financial Consumer Agency gives all Canadians access to a wide selection of free and useful tools. Under the subject of "beat that debt" their step by step advice falls into three categories:

For detailed step-by-step instructions and tools to help you better manage your finances, visit http://www.moneytools.ca or call 1-866-461-3222.

Banks and other lenders have personnel trained to help, and have a vested interest in you finding solutions to financial stresses in your household. Stop losing sleep over this and address your debts head-on today.