If you’re like many other Canadian consumers, you likely have some debt on your plate. The average Canadian owes $8,500 in consumer debt, and that’s not even including their mortgage. And about 12% of Canadians have consumer debt over $25,000, while another 14% have debts between $10,000 and $24,999.
That’s a lot of cash to owe to creditors, especially when you’re talking about debt that’s attached to a high-interest rate. Which means those numbers will continue to climb, making it increasingly difficult to pay down debt, especially when expenditures continue to occur.
In fact, credit card debt is an ongoing problem in Canada, considering how easy it is to pay with plastic rather than with cash. And considering the sky-high interest rate that typically comes with credit cards, it can be incredibly difficult to pay down such debt as it mounts.
So, what’s the real reason why debt in Canada is so high? Here are some of the more common reasons why Canadian consumers find themselves in debt.
Abusing Credit Cards
We’ve already briefly touched upon the credit card issues, but it is certainly worth mentioning more than once. Perhaps the most prevalent and common reason for consumer debt is the overuse and abuse of credit cards. While credit cards are meant to make it convenient to spend money without having to access cash – as well as all the rewards and perks that come with them – they can also put you in financial trouble if you’re not careful with them.
Learn how to consolidate your credit card debt, here.
Credit card debt can be very difficult to climb out of, especially when you take into consideration how high the interest rate can be on this type of debt. Credit card interest rate can be as high as 22% or more, and when the outstanding debt load increases, the interest amount paid can be astronomical.
Unless you get a handle on this debt and pay it down religiously, you could wind up with credit card debt that is a lot more than you can handle.
Missed Payments
Even one missed payment can put you in a precarious situation with your finances. With each missed payment, your outstanding debt load will continue to inch higher, bringing your debt load to a point that will make it much more difficult for you to pay down. And with every missed payment comes a late fee that’s tacked on to what you already owe, bringing your debt even higher than it was before.
Spending More Than You Can Afford
This sounds pretty obvious, but it’s worth mentioning. If you spend more money than you actually bring in, you can certainly expect your debt load to mount. Unfortunately, many Canadian consumers find themselves in this position, which is another common reason for mounting consumer debt in Canada. People like to have nice things, go places, and travel. But not everyone can necessarily afford what they want, but they spend like they can anyway.
If you spend more than you make, you can definitely expect your debt to rise.
Not Having A Financial Cushion to Fall Back on
It’s always wise to have a little bit of money saved and tucked away somewhere in case of a rainy day. The unexpected can always happen, and it’s always important to be prepared. If you’re not, you could be scrambling to take out payday loans with exorbitant interest rates, borrowing money from friends or family, or racking up your credit card to cover unexpected expenses.
Do you have an emergency fund? Here’s why it’s so important that you do.
Not Being Disciplined With Your Money
When it comes to money, you absolutely need to be self-disciplined and responsible with every dollar you have in your pocket. More specifically, credit cards tend to be the source of troubles for consumers who are compulsive spenders with little self-discipline. If you’re not responsible with your money and your credit cards, you can quickly and easily see your outstanding balance grow to the point of no return.
How to Avoid These Debt Traps
So, now that you know what can get you into financial trouble, how can you avoid getting stuck in these predicaments? Here are a few suggestions.
Only spend what you have in the bank. This is particularly relevant when it comes to using credit cards. It might be easy to whip out the plastic in order to pay for items, but you could find yourself in a sticky situation once the bill comes. Only spend up to an amount that matches what you have in the bank – or much less, preferably.
Don’t spend any more than 30% of your credit limit. It’s widely suggested that consumers not spend the entire credit limit amount. Doing so will not only make it much more difficult to pay down the balance (as well as the interest portion on top of that), but it could also negatively impact your credit score.
Keep your credit utilization down to make it easier to pay off your credit card bills in full every month while also keeping your credit score in check.
Make your bill payments on time. Forget about having to pay late charges on missed payments. Instead, make sure every bill is paid on time and in full every month. Not only will this help you stay on top of your debt, but it will also help to keep your credit score healthy.
Save for an emergency fund. Having a financial cushion to fall back on can be a real lifesaver when the time comes. Try to save up about three to six months worth of all the bills you usually have to pay every month just in case you lose your job, you suffer a medical emergency, or your car breaks down, among other things.
Final Thoughts
There’s a trend across Canada when it comes to growing household debt. Don’t be part of this trend, as it will do nothing but bury you in debt that you’ll find extremely difficult to climb out of. If you are currently having trouble dealing with your debt, Loans Canada can help. We’ve helped thousands of Canadians just like you, pay down their debt and get back on track to a healthier financial future.
