3 Reasons Why Canadians Stay Stuck In Debt

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Issues on affordability and financial stability are not a new thing. Almost every country faces the same dilemma to a varying extent. But Canada is among the places where the levels of consumer debt stand out. In fact, its household debt levels are higher compared to other countries. 

With overwhelming debt loads, it’s no wonder why Canadians are feeling financially stuck. Many of them cannot pay off their debts, increasing the number of bankruptcies and consumer proposals. 

To better understand this financial predicament and help anyone in the same situation, we’re highlighting the three reasons why Canadians stay stuck in debt. 

High-Cost of Living

Canada is a developed country, and it can be quite costly to live here depending on the specific city. 

For instance, the household costs, such as housing, food, utilities and transportation, can use up half of a Canadian’s take-home pay. It should also be noted that housing and utilities are the most expensive, whether one is renting or paying a mortgage. 

For every dollar that they earn, Canadians generally owe $1.77. Such a debt continues to grow with the cost of food, fuel and house prices also rising. Thus, it’s not surprising why many are having a hard time paying off their debts. With over half of Canadians living paycheque to paycheque and one-fourth have debt loads, many face a debt trap.

Based on a survey, 47% feel incapable of covering basic living expenses without taking on more debt. The cost of living in Canada is indeed high, and it’s so easy to find yourself in debt if you’re not financially prepared, which is what happened to nearly half of Canadians. 

Easy Access To Credit

Some 40 central banks had done interest-rate cuts since the Great Recession a decade ago, and the Bank of Canada is one of them. From then on, Canada has record-low interest rates, which have been extended to this day by banks and online lenders like CreditNinja. Its driving force is to reach the country’s  full employment and achieve the inflation target. 

With lower interest rates, borrowing becomes more accessible for Canadians. The amount of interest for the overnight rate that plunged to 0.25 percent makes mortgages and other loans more affordable. Although easy access to credit and low-interest rates are beneficial, they could bring more harm than good to one’s finances.

For Canadians with outstanding debt loads and are struggling to make ends meet, additional credit would be detrimental. A low-interest rate could accumulate if they are not able to make monthly payments on time. Their debt load only continues to inch higher, making it harder for them to get out of debt. 

Lack of Financial Literacy

The high cost of living and easy access to credit is probably the after-effects of the root of the problem. If people know how to manage their finances, taking on the debt would have been useful. But the problem is, many Canadians lack the basic knowledge and skill to make informed financial decisions. 

Although 70 percent of them claimed to be financially knowledgeable, their financial habits revealed a much different story. They have even more debts than those who admit their financial literacy is lacking. Without knowing how to make budget and track expenses, anyone could accumulate debts easily. 

The lack of financial literacy often pulls people into unmanageable debts on credit cards, lines of credit, and other loan opportunities. In fact, nearly half of credit-constrained Canadians have acquired multiple loans to make ends meet. But unfortunately, they don’t have adequate knowledge of the cost and consequences before taking such financial obligations.

How To Get Out of Debt?

If you’re living in Canada or wherever part of the world and struggling with an unmanageable debt situation, you are not alone. Many people have been in the same financial dilemma, but they were able to overcome it. Knowing that you’re having difficulty paying down your debts is the first step, and there is help available if you need it. 

Budgeting and cutting down unnecessary expenses are the most practical thing you can do to alleviate the situation. However, it might be more difficult to do on your own when you have bad spending habits. You would need a concrete plan to clear up your debts. In this case, it would be best to go to a credit counsellor. 

Credit counselling agencies usually can offer free advice no matter what your financial situation is. They evaluate your debts, budget, and credit and then help you develop the best plan to get out of debts. If you can’t pay off your balance on your own, they can also help you enroll in a debt management program (DMP). 

Debts are not necessarily a bad thing as we need to take out a loan or use a credit card to make essential purchases. But it only becomes unhealthy when you take on more debts that you can comfortably afford. That’s why financial education is important to help you develop a good financial attitude and behavior. When you know how to handle your finances, a high cost of living and easy access to credit would not be a problem. 

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