There are so many headlines regarding household debt in Canada these days. One day we’ll read that debt is at an all-time high and heading towards a U.S.-like bubble; the next day, we’ll read that Canadians are far more responsible than our neighbours to the south and that debt is increasing but at a declining rate.
Here are the facts: Debt is at an all-time high of over 170% of household gross income and it continues to increase. The U.S. has never borrowed at this level. Yes, much of this debt is at record-low interest rates but it doesn’t mean that when (not if) interest rates do increase that Canadians have savings packed away, and can pay their debt down at a moment’s notice.
My opinion is that headlines matter little to an individual starting their first job, or a family living paycheque to paycheque or a couple trying to save for retirement. What matters most is how each is managing their own situation – and everyone’s situation is unique.
I have clients who have debt for many justified reasons. Student debt, a lost job, career changes, sickness, helping out family, maternity leaves, a divorce, moving homes, the list goes on. Taking on debt can certainly be advantageous because it allows many to keep their homes during a difficult period, or carries an individual through a rough patch. And of course, there may be some debt that creeps into the lifestyle unwittingly – a home renovation that didn’t come in on quote, a car that needed replacing sooner than expected, an anniversary trip promised, family responsibilities, school tuition increases, etc.
The fact is that debt is part of our world. The problem is that most don’t have a plan to remove it from their lives. And without a plan, debt has the potential to bring unbearable pain and loss far beyond the dollars owed. Money challenges are the #1 reason for divorce in the first 5 years of marriage, and are cited as significant contributors to declining productivity at work, depression, sickness and even suicide. Without a solution or professional assistance, debt can lead to more debt because giving up is not an option.
There are solutions, and Canadians are seeking assistance in record numbers.
Debt counselors, debt consolidators, cash stores, and lots of others, including the banks and credit unions are where many go for help. Unfortunately the majority of these institutions make their profit from clients either paying large up-front fees or by charging their clients interest – meaning it might be in the companies’ best interest to have their customers fall further into debt. Too few companies focus on educating customers or understanding root cause, which means most Canadians are ‘repeat debt offenders’ – hardly the solution most are seeking.
Money coaching is another alternative – and it is unique in many ways.
A flat fee Money Coach will work closely with you, develop strategies tailored to your situation and help you quickly and responsibly remove this stress from your life.
If you consider this route, you should seek a Money Coach who is qualified, motivational and understanding. There should be a good ‘fit’ between you, you shouldn’t feel judged, and you should feel welcome to ask anything. A great Money Coach will educate you in areas that might be soft spots for you, and take a holistic approach to your financial well-being.
If they sell no products and don’t receive kick-backs from their network then you can be assured the advice you receive is without bias. Too many ‘solutions’ are product-based these days and I find products by themselves are rarely great solutions. Information and education is what empowers people to make better future decisions. Make sure you are with someone who prioritizes your financial literacy.
Whatever path you take never commit during the first meeting. Ask the tough questions, assess your alternatives and make sure they come recommended. Ask for references. Then take a few days to make sure the route you are choosing is best for you, your family and your unique situation. Seeking help is a great move, but be careful with the choices you make. The wrong choice could actually put you further in the hole.