The Certified General Accountants Association of Canada (CGAAC) says that Canadian household debt rose to an all-time high of $1.3 trillion in 2008; that works out to close to $40,000 for each man, woman, and child in the country.
“Lines of credit and credit cards,” says the Association, “account for the largest proportion of consumer debt, with 85 percent of indebted Canadians reporting that they have outstanding debt on a credit card.”
This information and much more besides is contained in a May 2009 report, “Where has the Money Gone?" published by the CGAAC. It was based on a survey of 2,000 people taken in November 2008.
Credit Card Debt is the Most Expensive
Increasingly, consumers are viewing money borrowed on a credit card as income. It is not. As the CGAAC report says, “Canadian households are financing consumption activity and fueling gross domestic product growth with unearned money as families increasingly reach for credit to finance day-to-day living expenses.”
More than half of the country’s households (58%) are using debt to pay for everyday expenditures. This is up from 52% in 2007.
But, using credit cards for purchasing goods and services can double their cost. Assume a balance on a card of $5,000 at an interest rate of 14 percent. Just paying the monthly minimum off the balance will mean interest costs of $5,887 by the time the debt is paid off. And, it will take 22 years to extinguish the balance.
Missing Credit Card Payments Leads to Trouble
Laurie Campbell is executive director at Credit Canada, a not-for-profit credit counseling agency; in an interview with The Globe and Mail (June 2, 2009) she warned consumers of the hazards of skipping credit card payments.
Missing even one month’s payments can lead to a note going on a borrower’s credit file, which can negatively affect the ability to borrow. Miss a second payment and an automatic increase in the interest rate on the card of up to five percent is triggered; it’s perfectly legal and is written in the small print of most card agreements.
Failing to pay for three months in a row and the bank or card issuer is likely to hand the debt over to a collection agency or take more aggressive action.
Time to Call a Credit Counselor
Laurie Campbell says she is seeing increasing numbers of creditors applying to have wages garnisheed. As Ms. Campbell told The Globe and Mail’s Rob Carrick: “I have a feeling that creditors are not going to wait, in this climate. They know there are going to be about 10 other creditors behind them. If they don’t get in there first and get that garnishment, then they’ll have to wait in line.”
At this stage, the best move for consumers in debt trouble is to seek out a credit counselor. Many are non-profit agencies that can work as an intermediary between debtor and creditor to set up a manageable budget and repayment program.
Debt is Entrapping many People
Ms. Campbell is seeing increasing numbers of people trying to carry $20,000 or $30,000 on their credit cards. “Debt has no boundaries,” she says. “We see people on social assistance, we see doctors and lawyers. We’re seeing more professionals.”
Seeking the advice of professionals can save money and a credit rating. This, coupled with a more disciplined approach to spending, is the best way to get off the debt treadmill.
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