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It is no secret that the cost of living in Canada is expensive, especially in cities. But, what’s more of a secret is the debt Canadians are accumulating to help them afford the cost of living. In fact, debt has become such a prevalent issue in Canada that the insolvency rate, also known as the bankruptcy and consumer proposal rate, has increased significantly in the first quarter of 2019. Let’s explore the current Canadian insolvency trends and what you can do to protect yourself from the issue.

Everything you need to know about the Bankruptcy and Insolvency Act, click here.

Current Consumer Insolvency Trends in Canada

Recent studies have shown that Canadians across the nation are under extreme social pressure to spend money which is causing an aggregate spiral into debt. It doesn’t help that interest rates are higher and the standard of living is so expensive. Many individuals and households have become a “financial sweatbox”. This term refers to those who forgo necessities of life and cope with calls from debt collection agencies to avoid filing for bankruptcy or entering a consumer proposal.

Despite the “financial sweatbox” situation, the toll on Canadians is so immense that the insolvency rate hit an eight-year high in the first three months of the 2019 year. Consumer insolvencies in Canada haven’t been nearly this high since 2011, a bad year for Canadians due to the global financial crisis.

The 5 most common reasons Canadians are in debt, check this out.

As many Canadians might be wondering, what is the source of such a dramatic increase in the insolvency rate? Unfortunately, the answer is not completely clear and there is more than one source of the problem. For one, research has shown that Canadians are struggling to cover their expenses on a monthly basis. This doesn’t mean Canadians are living a lifestyle that is too expensive for their budget, it could mean that the cost of living is too expensive for the average Canadian. If you struggle to cover all your expenses every month, the statistics prove you’re not alone.

In addition, the financial pressure surrounding debt is high. Approximately 15% of Canadians’ income goes toward debt repayment. A pretty big part of this problem is the increase in interest rates the Bank of Canada rolled out starting in 2017. Although the Bank of Canada has become aware of the current debt problem and halted further interest rate increases until further notice, it does not solve the insolvency issue Canada is currently experiencing.

Finally, debt has become trendy in some ways due to social pressure. In a study, 91% of millennials admitted they took on debt in order to financially afford to keep up with their peers. The debt was mainly used for vacation costs and post-work festivities, such as dinner and drinks with coworkers. What’s worse is most of these individuals have kept their debt a secret. This dangerous financial habit often leads to worse financial and debt problems, ignoring something doesn’t mean it’s there.

Learn How to Tackle Debt
Check out this infographic to learn how to create a debt repayment plan.

Signs of Financial Trouble

Sometimes it can be challenging to know whether or not you’re in a poor financial position when you’re in the midst of it. Below are some tell-tale signs of financial trouble. If you can relate to one or more of the below signs, it may be time to take a hard look at your financial situation and consider your options to becoming debt free.

  • No money in savings and unable to save money
  • Affording what you can day by day
  • Relying on credit cards and other forms of credit
  • Not tracking expenses or reflecting on your expenditures
  • Using debt to pay off other debt

Pre-Bankruptcy Options

Filing for bankruptcy or entering a consumer proposal is sometimes the most viable option for certain consumers. Although, the consequences of a bankruptcy or consumer proposal can be severe. Before filing for bankruptcy or a consumer proposal, consider the below pre-bankruptcy options. You may be able to become debt free without the complications of bankruptcy or consumer proposals.

  • Create a Budget. Sometimes all you might need is proper financial structure to get out of debt. Start by writing out all your income, expenses, and debt. From there, you can create a realistic and reasonable budget to get out of debt.
  • Debt Counseling. Counseling sessions can help people learn how to manage their finances. Unfortunately, budgeting and financial management isn’t taught in schools and doesn’t come naturally to everyone. Learning from a counselor could help you reverse your debt and develop better financial habits for the future.
  • Debt Consolidation. This is the process of combining all your existing debt into one new loan. Having one loan payment to worry about, instead of many, makes managing debt much easier. In addition, you can usually snag a lower interest rate making the total amount you owe less.
  • Debt Settlement. This is the process of negotiating with lenders to settle your debt. Usually, the goal is to pay a lower price than what was originally owed. The idea is creditors typically want a partial payment as opposed to no payment.

Can you file for bankrutcy online in Canada? Find out here.

Struggling with Debt?

For those that are experiencing financial stress and are at risk of becoming insolvent, remember that you are not alone! Many Canadians are struggling with the same issues as you and you have options. First, you should take a hard look at your financial situation and determine how severe your debt is. From there, you can explore your debt relief options, which could be anything from creating a budget to filing for bankruptcy. If at any point you are uncertain of what to do to become debt free, Loans Canada can help!

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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