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By: Theresa PughPublished On: March 13, 2015
This year, the debt-to-income ratio in Canada clocked in at 1.63. Meaning for every $1 earned, Canadians owed banks, credit-card companies, auto dealerships and other lenders $1.63 in debt.
According to Scott Hannah, CEO of the Credit Counselling Society (CCS), in some ways, the recession was almost too short because it didn’t really change our behaviours.
During the recession, the amount of debt Americans were carrying was at 167 per cent – today, said Hannah that number is down to 140 per cent.
“We’ve gone the opposite way,” said Hannah. “We’re within a few percentage points of what the U.S. was at during the collapse.”
A recent survey from the CCS showed that while the majority of Canadians (66 per cent) consider themselves highly financially literate, many continue to make financial mistakes. Here are five ways Canadians can begin to reduce their consumer debt.
Canadians have become increasingly comfortable with debt. In some cases, this is out of necessity – once the bills are paid, if there is nothing left from a pay cheque, groceries and other necessities get charged to a credit card.
But in other cases, consumers are spending more than they make chasing the desire to have the latest and greatest of everything.
In a recent survey for Consolidated Credit, 35 per cent of Canadians said their largest source of consumer debt was impulse shopping.
The majority of those surveyed (71 per cent), said that learning to live within their means was the most valuable lesson they have learned.
The CCS survey found that 64 per cent of Canadians who frequently carry credit card balances claim to be highly financially literate. “It doesn’t make any sense,” said Hannah.
Consolidated Credit stresses the importance of paying more than the minimum payments on your credit card bills. “Paying the minimum will prolong your pay period and add interest to the cost of your purchase,” the organization said.
If you have multiple credit card debts, start by paying off the card with the highest interest rate.
Hannah said the amount of auto loans doled out is growing faster than any other type of loan in Canada because of new financing models.
Before taking on a car loan, experts suggest you sit down and take a close look at your expenses ’ see how much you can actually afford, including the cost of gas, loan payments, insurance and maintenance.
The first step to getting your finances on track is to think of your family like a business, said Hannah. The first rule of business? “You can’t spend more than comes into the household,” he said.
Set up automatic withdrawal plans, so retirement savings automatically come off your pay cheque on a regular basis.
Take advantage of free money when you can, such as RRSP matching programs at your place of employment.
Courtesy of Global News’ Jamie Sturgeon and The Canadian Press