Category: Blog

If your debt load is more than you have ever expected, you need not fret as you’re not alone. According to the Statistics Canada, the debt-to-income ratios of the Canadian households have reached record highs, ranging somewhere above 148%. This alarming figure shows that the Canadians owe $1.48 on every dollar of their disposable income that they have. If you’re one such Canadian, you need to take some solid steps that will help you lighten your overwhelmingly large load. The consumer debt crisis in Canada has been in the centre stage, it has been surveyed that the Canadian homeowners owe a whole of $1.5 trillion of debt. Though debt settlement can be a worthy option when it comes to repaying your debts, yet you must take some steps on your own to make sure that you manage this debt level that is soon spiraling out of control.

Debt usually results from reckless spending habits and out-of-control usage of credit. It needs no mention that credit is important as it helps us purchase things that we cannot afford with money, yet too much usage of credit may lead you into high interest debt that can take a toll on your personal financial lives. Credit needs to be managed wisely so that it doesn’t become a burden on you. Following some simple personal finance management tips you can easily get a grip on your finances and thereby reduce your debt burden. Getting out of this spiraling debt level not only seems attainable but you may also feel rewarding. Have a look at the perfect recipe for a debt reduction plan.

1. Study your monthly expenses: Make a list of your income and expenses so that you can ease off the pressure on your wallet. Create a monthly spending plan by implementing a frugal budget so that you can eliminate all the unnecessary expenses and concentrate only on the things that you need. Monitor your savings so that you can have enough funds to pay off your debts on time.

2. Restrain the usage of your cards: Unless you restrain the usage of your credit cards, you can never see positive results in your debt life. The more you use credit while shopping for things, the more you dig yourself deeper into the debt hole. Lock your cards in your cupboard and carry cash while you go out. Stop shopping as soon as you exhaust your cash.

3. Consolidate your debt: Having one monthly payment will be easier on your wallet than having to manage multiple payments in a month. Choose to consolidate your debts whether by signing up with a debt consolidation company or by taking out a debt consolidation loan. With minimized interest rate, debt repayment will become easier for you and you can let go of the thought of filing a bankruptcy.

4. Choose to make bi-weekly payments: If you want to make debt more manageable, you have to explore the ways in which you can get debt free sooner. Paying bi-weekly means you need to make 26 payments instead of 12 payments in a year. If you pay more frequently, you have to pay lesser on interest rates and therefore you can become debt free sooner.

5. Speak to a financial planner: A financial planner in Canada may help you take the best step towards your financial goal. Paying off credit card debt and consumer debt can become easier if you get help from a financial planner. He will tell you how to balance your income and expenses simultaneously.

Pull out your credit report once in a month to confirm whether or not everything is being listed in it. Make needed changes to boost your score and remain creditworthy to your lenders. If needed, you can either consolidate your debts or go for debt settlement to repay your creditors on time.

JANET McFARLAND
From Saturday’s Globe and Mail
Published Friday, Mar. 18, 2011 1:16PM EDT
Last updated Friday, Mar. 18, 2011 5:21PM EDT

Insolvencies dropped in Canada last year as consumers and businesses benefited from improving economic conditions to avoid bankruptcy.

But the trend remains far worse than pre-recession levels, according to new data released Friday by the federal Office of the Superintendent of Bankruptcy, and the improvement comes from an especially weak base in 2009.

Insolvencies fell 11.5 per cent in Canada in 2010, with 140,234 new cases filed compared with 158,441 cases in 2009. Consumers accounted for the vast majority of the cases – 135,008 last year, down 11 per cent from 151,712 in 2009. Business insolvencies dropped an even larger 22.3 per cent in 2010 to 5,226 cases from 6,729 cases in 2009.

The bankruptcy superintendent defines insolvencies as both bankruptcies and formal agreements to settle debts, known as proposals.

While trends were broadly positive in 2010, the volume of insolvencies still remains higher than pre-recession levels, the bankruptcy superintendent said.

Insolvencies in 2010 were 20.6-per-cent higher than during the 12-month period ending September, 2008, just before the economic downturn began. Insolvencies spiked 29 per cent in 2009 to 158,441 cases compared with 123,234 cases in 2008.

The figures showed some strengthening as the months progressed through 2010, however, with December insolvencies falling almost 17 per cent from November levels.

Bankruptcy trustee Marvin Zweig, senior vice-president at accounting firm Meyers Norris Penny Ltd., said he is not yet convinced there has been a broad turnaround in insolvencies in Canada.

He said a flood of new companies have emerged offering to help consumers informally restructure their debts. Their work may be deferring or delaying formal bankruptcy or proposal filings, Mr. Zweig said, but it still means many people are essentially insolvent.

“I think the results are worse than the numbers are showing,” he said. “I think there are a lot of people who are insolvent and are going through a process to deal with their debts, but they aren’t necessarily at this time filing assignments in bankruptcy or proposals.”

Mr. Zweig said the new debt-restructuring firms are especially active in the Toronto area, which he believes helps account for some of the drop in cases recorded in Ontario last year.

Ontario saw the biggest improvement last year, with total insolvencies dropping 16 per cent as hard-hit manufacturing and other sectors posted improvements. Ontario insolvencies fell to 58,479 cases from 69,494 in 2009.

Prince Edward Island was the only province to record an increase last year, with insolvencies climbing to 598 cases from 577 in 2009.

Mr. Zweig said he is still seeing a large number of seniors among those filing for bankruptcy, with many living on government pension allowances and using their credit cards for necessities like food and clothing.

A 2006 study funded by the Office of the Superintendent of Bankruptcy concluded seniors are the fastest growing category of personal bankruptcies in Canada, accounting for one in nine new filings.

“I’m certainly seeing it in my practice,” Mr. Zweig said. “Unfortunately a lot of people when they retire are forced to live on government pension, and unfortunately it doesn’t cut it and they start to rely on their credit cards … They can only go so long in juggling the minimum payments, and eventually they have no choice but to deal with their debt.”

The latest figures also show the impact of new rules introduced in September, 2009, that have shifted the balance between bankruptcy filings and restructuring proposals.

The bankruptcy superintendent said 43,268 consumers filed debt-restructuring proposals in 2010, up 18 per cent from 36,640 cases in 2009.

Many people who might have filed for bankruptcy in the past to clear their debts are now opting for restructuring because bankruptcy standards have been toughened, especially for people who are deemed to have surplus income when they are insolvent, Mr. Zweig said.

Restructuring proposals allow debtors – including individuals with debts under $250,000 – a greater ability to settle their obligations while retaining assets and avoiding the black mark of a bankruptcy on their files. A bankruptcy filing stays on an individual’s credit record for longer than a proposal.

TARA PERKINS — FINANCIAL SERVICES REPORTER
From Wednesday’s Globe and Mail
Published Tuesday, Feb. 08, 2011 11:00PM EST
Last updated Wednesday, Feb. 09, 2011 5:56PM EST

As consumer debt levels soar and baby boomers approach retirement, the federal government is looking at adopting a long list of measures designed to prod Canadians into making smarter financial decisions.

The measures recommended by a federal task force cover a wide range of initiatives. Employers who offer pensions would be required to automatically enroll employees and escalate their contributions, so that employees would have to opt out rather than opt in. Financial institutions would be forced to simplify and improve information available about everything from mortgages to mutual funds. Tax breaks would be offered for workplace financial literacy programs, and students would be taught more about debt if they take out a student loan.

Finance Minister Jim Flaherty is to hold a press conference in Ottawa Wednesday to unveil the series of recommendations from the Task Force on Financial Literacy that he struck in 2009.

There are 30 recommendations in all, according to a source familiar with them, and they cover everything from pension plans to school curriculum. The idea is to spur Canadians of all ages and walks of life to learn better money management, helping to mitigate economy-wide headaches such as excessive debt loads and a potential pension crisis.

The task force’s report asks provincial governments to bolster money management education in the school system, and suggests that large public corporations should have to disclose what they are doing to further the cause.

The task force, chaired by Sun Life Financial Inc. chief executive officer Don Stewart, has based many of its recommendations on research it commissioned; that, too, will be released today. For example, the research shows that many Canadians aren’t accessing government benefits that are available to them because of complexities in the system and a lack of information.

The panel has also drawn on insights from behavioural psychologists to find ways to nudge Canadians toward better choices. An example: Research suggests that when a person knows they will be receiving money, but don’t yet have it, they are more likely to consider saving it that when they have cash in hand. With that in mind, the task force is telling Ottawa to change tax return forms so that consumers can opt to have the money deposited straight into a long-term savings account such as an RRSP.

The report calls on the federal government to appoint an individual who will be the country’s Financial Literacy Leader, accountable to the Finance Minister, to oversee the implementation of these recommendations.

Mr. Flaherty is expected to take action on the report relatively quickly because improving Canadians’ financial knowledge is a key issue for him.

“Financial literacy is something that the Finance Minister sees as a critical part of a strong economy,” said a government source. “Whether it is a question of saving for retirement, financing a new home, or balancing the family cheque book, improving the financial literacy of Canadians will add to the competitiveness and stability of our financial system and make our economy stronger.”

The report is being made public as Ottawa grapples with record consumer debt loads. Last month, Mr. Flaherty announced a series of measures designed to curb the growth of mortgage debt levels, including cutting the maximum term of insured mortgages to 30 years from 35 effective March 18.

In a bid to stoke the economy, policy makers spurred the flow of credit during the downturn, so that consumer spending could fuel economic growth. They are now dealing with the ramifications.

DIANNE NICE
Globe and Mail Update
Published Wednesday, Feb. 16, 2011 12:00AM EST
Last updated Thursday, Feb. 17, 2011 11:20AM EST

When a bus driver stopped to offer Signa Daum Shanks a free ride on a recent -27 C morning in Saskatoon she couldn’t have been more grateful. With thousands of dollars in student loans to start repaying in a few months, she’s looking for any way to save money.

For more than 20 years, Ms. Daum Shanks has scrimped and saved her way through a BA, an MA, a law degree, a masters of law and a nearly completed PhD. She has taken two years off between each degree to work and chip away at her debt.

Now 41, the assistant professor at the University of Saskatchewan’s College of Law can’t help wondering when she’ll be able to start living like a professional, buy a car and get serious about retirement savings. She’s making a good salary, but with $67,000 in student debt, plus condo payments, her other goals will have to wait.

“I just sort of feel a bit frozen about what to do,” she says, adding that if she’d known when she started her education how difficult it would be to make ends meet, she might have thought twice.

It’s a predicament that many students face, says Zach Dayler, national director of the Canadian Alliance of Student Associations in Ottawa. While post-secondary education is crucial to landing a good job, the cost of borrowing to pay for it can be staggering. And it’s not something students fully realize until their debts come due.

“You don’t really, truly understand what you’re getting into until you graduate and start paying it back,” says Mr. Dayler, 26, who did an MA in urban planning at Dalhousie University and has $40,000 in student debt. “I just graduated in May, and let me tell you, it’s a little bit of a wakeup call.”

Last week, the Task Force on Financial Literacy made 30 recommendations for strengthening Canadians’ money-management skills, including a call for mandatory financial education for students who qualify for the Canada Student Loans Program.

Don Stewart, chairman of the task force, says it’s important to use “teachable” moments, such as heading off to college, to educate students about financial planning. Too often, he says, students don’t know how to budget their spending to make their loan money last.

“Handing out money without some form of education and understanding is a bad idea,” Mr. Stewart says. “Anything that can be done to make people understand better what it is they’re getting into will be a plus.”

An estimated 4.3 million students have received almost $32-billion in loans since the national student loan program was created in 1964.

A national survey conducted by CASA shows that most students don’t understand the financial side of government loans. Only 31 per cent of those polled knew that to qualify for a student loan, they might be subject to a credit check, and just 23 per cent realized that interest on the loans begins to accrue immediately upon graduation. The interest on student debt can range between prime plus 1 per cent for a line of credit to prime plus 5 per cent for a loan.

“We’re giving a good chunk of money to sometimes some of the least financially experienced individuals out there,” Mr. Dayler says. “So we have to make sure that they’re protected and understand that student loans and loans in general are a serious financial risk and commitment.”

According to Statistics Canada, the cost of a year’s tuition for the average undergraduate student rose from $4,400 in 2006 to $5,138 in 2010. When you factor in other costs, such as rent, transportation and books, a single year of post-secondary education will cost students between $10,000 and $15,000, according to a 2007 study commissioned by the Canada Millennium Scholarship Foundation. According to the study, 59 per cent of undergraduate students graduate with debt, averaging $24,000 each

Matt Harding, 28, a lawyer at McCarthy Tétrault LLP in Toronto, says it’s too easy for students to lose control of their spending when they’re on their own. He has spent the first year of his career paying down the $80,000 he racked up on two student lines of credit, plus $30,000 in credit-card debt, while earning his law degree at the University of British Columbia.

“I didn’t really feel like I needed to live like a student, and was kind of reckless and ended up needing a second line of credit,” says Mr. Harding, who used some of the “free money” to travel. “By the end, I was so poor.”

It’s crucial that parents and teachers get students thinking about the costs of education well before it’s time to take out a loan, and to show them how to budget, says Perry Quinton, vice-president of marketing for the non-profit Investor Education Fund.

“You have to start thinking about it: and not just students, but their parents. It has got to be thought about years ahead of time so that you’re actually putting in the planning to figure out how you’re going to pay for this,” Ms. Quinton says.

The beginning of high school is a good time to get a plan in place because students are sitting down with their parents and guidance counsellors to pick out the courses that will set them on their future career paths, she says.

“There’s an opportunity to sit down and say, ‘By the way, it costs money, and how are you going to pay for it?’ ”

DEBT AVOIDANCE 101

1. Get educated

Before you borrow, find out how the loan process works. Learn about types of debt, what interest rates you’ll pay and how long it’ll take to pay off. Get your information from a reputable source such as CanLearn.ca, the government’s website about saving, budgeting and borrowing for post-secondary education.

2. Start saving early

The more you save through part-time work, the less you’ll need to borrow, and the earlier you start to earn interest on that money, the faster it will grow. A Registered Education Savings Plan allows savings to grow tax-free and may also qualify for free government money through the Canada Education Savings Grant and the Canada Learning Bond. Also, students who have Registered Retirement Savings Plans can make tax-free withdrawals under the Lifelong Learning Plan. They usually must be repaid within 10 years.

3. Apply for free money

Grants, bursaries and scholarships are tax-exempt and never need to be paid back. Search for government grants at CanLearn.ca. Find other sources of money at GlobeCampus.ca/money-finder.

4. Get relief

The federal government and most provinces offer repayment assistance programs for those having trouble paying off their government student loans. Information is available at CanLearn.ca.

5. Get cash back

At tax time, you’re entitled to a 15-per-cent tax credit on the interest you pay on your government student loans. You can also make an education claim of $400 per month, plus a non-refundable textbook tax credit of $65 for each month you’re enrolled in full-time studies.

TORONTO— The Canadian Press
Published Wednesday, Feb. 16, 2011 6:29AM EST
Last updated Wednesday, Feb. 16, 2011 6:38AM EST

There was a surprising drop in the amount borrowed on credit cards by Canadians during the holiday-laden fourth quarter, but overall non-mortgage debt went up substantially across the country, a credit analysis firm reported Wednesday.

TransUnion said average total debt per Canadian consumer, excluding mortgages, was $25,709 in the fourth quarter of 2010 – up 5.6 per cent from $24,346 in the comparable period of 2009.

Only a small portion of the total in either year was drawn on credit cards, which usually charge among the highest rates of interest.

The surprise, according to TransUnion, was that the average credit card debt in the fourth quarter of 2010 dropped by 2.7 per cent from a year earlier to $3,688.

Lines of credit were the biggest form of consumer debt tracked, and increased to nearly $34,000 – up 8.8 per cent over the year.

“From the increase in lines of credit this quarter, one can safely assume that many Canadians ultimately relied on this form of credit during the last three months of 2010 and the important holiday shopping season,” said Thomas Higgins, TransUnion’s vice-president of analytics.

“Since many lines of credit offer attractive interest rates, many Canadians have learned to use credit cards in their initial purchase and then pay off or down the balance using their line of credit. This allows them to take advantage of both the loyalty programs many credit cards offer and lower interest rates of their line of credit.”

Auto loans were the second-biggest form of non-mortgage debt tracked by the report and TransUnion found the Canadian average rose to nearly $16,200 per borrower in the fourth quarter, up 11 per cent from a year earlier.

However, it found that total auto debt for the country as a whole declined to $45.8-billion in the fourth quarter, from $48.3-billion in the comparable period of 2009.

“While total auto debt continues to decline in Canada, it is interesting to see auto debt per auto borrower rise,” Higgins said.

“This means those Canadians with autos loans are either purchasing higher end vehicles, or newer ones.”

TransUnion’s analysis is based on an active credit population of 24.9 million consumers in Canada.

DIANNE NICE
Globe and Mail Update
Published Thursday, Feb. 17, 2011 10:31AM EST
Last updated Thursday, Feb. 17, 2011 1:19PM EST

Canadian average household debt has hit the six-figure mark for the first time, according to a report released Thursday by the Vanier Institute of the Family.

The average household debt figure at the end of 2010 was $100,879, with the debt-to-income ratio at a record 150 per cent, the report says. That means for every $1,000 Canadian families earn after tax, they now owe $1,500. Mortgages account for two-thirds of that debt at $63,000 per household. The other third is made up of personal loans and credit card debt.

For the 55 per cent of Canadian households with mortgages, the average debt figure is even higher: $171,500. Those are the households that are going to be the most vulnerable when interest rates inevitably rise and housing prices fall, says Roger Sauvé, the report’s author. “Their payments are going to go up and the price of their house is going to go down. It’ll be more difficult.”

Households have also seen a steady decline in savings, from 13 per cent in 1990 to 4.2 per cent in 2010.

Mr. Sauvé says there’s only one message to take away from these numbers: “Reduce debt, save more, spend less.”

While household expenditures dipped 1 per cent in 2009 (adjusted for inflation), the cutbacks were short-lived, and by the end of 2010 had returned to 2008 levels. Spending in retail outlets followed a similar path, the report says.

“We’re still out there expanding our credit limits,” says Mr. Sauvé, who predicts the debt-to-income ratio could easily reach 160 per cent within the next two years if the trend continues.

Much of the expansion in credit growth has been due to record low interest rates, the report says. “Households have been able to take on higher levels of debt since the cost of borrowing has been, and remains, relatively low.”

Signs of debt stress are obvious, the report says. In October, 2010, 17,400 mortgages were in arrears by three or more months, up 50 per cent since the recession began. Compared to pre-recession levels, the 90-day delinquency rate on credit cards was up 28 per cent in July, 2010, and about 32,300 Canadians became insolvent in the third quarter 2010, up 12 per cent from pre-recession levels.

According to the Bank of Canada, about 6.5 per cent of households currently have a high debt-service ratio, meaning debt payments and interest amount to 40 per cent or more relative to their disposable incomes. The 10-year average is 6.1 per cent. The Bank of Canada model assumes that one-quarter of these 950,000 households is likely to default on debts.

“We’ve been tracking this report for 12 years,” says Katherine Scott, the Institute’s director of programs. “We’re certainly concerned about the levels of household debt and what that signals for the fragility of a significant number of Canadian families.”

Figures released Wednesday by credit bureau TransUnion echo the Vanier Institute’s findings, reporting average total debt per Canadian consumer, excluding mortgages, was $25,709 in the fourth quarter of 2010, up 5.6 per cent from $24,346 in the comparable period of 2009.

When you consider that in 1990, average family debt stood at $56,800, with a debt-to-income ratio of 93 per cent, household debt has seen a real increase of 78 per cent over the past two decades.

“I think we have a significant challenge,” Ms. Scott says. “There are many vulnerable families. Looking forward, I think we have to remember that we have to continue to invest in public supports for in particular income supports for Canadians and at the same time push forward recommendations around improved financial literacy.”

Maintaining a household budget can be difficult for many people. That’s why a lot of us use credit cards to cover shortfalls.

For one thing, it takes real work to build a budget and it takes real work to consistently put the budget into action. Furthermore, people just plain don’t like to cut back on what floats their boat from golfing to eating out at restaurants, to buying two or three coffees a day.

Baby Steps

We’ve heard that with no pain, there’s no gain. So, it’s important to plan your budget correctly and think about it in a way that enables you to be successful. I know we can all be our own worst enemy at times, but that’s what the budget is for, to remind us and keep us on track. Be realistic and take baby steps in the beginning and financial success will happen.

Keeping your budget intact first requires everybody in your house to buy into the fact that there even IS a budget. No point in having you cut back while no one else does, is there? Kinda defeats the purpose of the exercise.

You have to break out all of your expenses, from the largest to the least significant and be absolutely as specific as possible. So, you shouldn’t put “house bills” on your budget list, but rather you should chunk that down into utility bills, cable and internet bills, necessities and toiletries and so on.

By the way, this chunking down holds true for every category, especially food, which should be broken down into categories such as groceries, dining out, kids lunches and snacks. If you’re a big coffee drinker, be sure to include a category for your daily coffee splurges or vending machine jaunts.

Breaking down your budget into very specific categories will provide a more accurate picture of where your money is really going, and, if you need to, where you can cut things out that won’t matter as much to you.

Setting Goals

Another important tip to keep your household budget working is that you first need to create some goals for why you are creating the budget. Are you falling short of your expenses and charging too much to your credit card? Are you trying to establish a fund for a vacation or for emergency expenses? Maybe you are trying to save up for a new TV, a new car or a home.
Whatever the reason is, if you establish the goals beforehand you’ll have much more motivation to stick to the plan over the long haul. Why? Because you know what the destination is…the goal you have set up for yourself.
It’s also important to create realistic strategies and expectations. If you set a household budget that’s too narrow it may be impossible to keep. This can lead to frustration as well as lapses in judgment and a failure to keep the budget in action consistently over a long period of time. Create realistic and achievable goals. You’ll feel much better knowing you achieved a modest goal than if you set an intense goal and failed to live up to.

You Can Have Some Fun Too

Finally, be sure to allow for some things that you enjoy or some indulgences, no matter how small. If you cut everything fun that you enjoy out of your budget, then you won’t have anything to look forward to or make it worthwhile.

If you love your Starbucks for example and go twice a day every day, don’t eliminate it completely from your plan. Instead, try to cut down to maybe three trips a week, or at least one a day and you’ll cherish the reward even more while saving a substantial amount of money.

There are many tips you can utilize to make your household budget hold up under pressure and last over the long haul. Think about your goals, break down your expenses, set realistic expectations and allow for some enjoyments and your success will improve greatly.

Consumer debt statistics don’t lie. After all, it’s just math right? However, debt is a huge and growing problem in today’s society in both the United States and in Canada.

Actually, it is a hole that most of us have dug for ourselves in almost any English speaking country. If you’re seriously straining yourself with trying to pay off your debt, the bottom line is – you are certainly not alone. For starters, let’s explore some consumer debt statistics for the United States.

A staggering 1 in 177 homes in the U.S. has received at least one foreclosure notice. A whopping 43% of American households live from paycheck-to-paycheck, and not surprisingly, they have less than $1,000 in assets. Senior citizens who used to be associated with saving and putting off what they didn’t need till a later day, have buckled hard under the weight of debt. It’s no fun working your whole life only to end up between a rock and a hard place. Between the years of 1992 and 2001, the average senior’s credit card balance rose a staggering 89%! Why is this? And who wants to be associated with that statistic anyways?

Only 3% of seniors are totally debt free and fully financially independent. Because of this, some seniors have to work well beyond their retirement years while others have to rely on friends and/or family for financial support.

The average credit card balance in households in the United States today is just under $10,000. If we link this back into the 43% living paycheck-to-paycheck, how is anybody supposed to get on top?

Next, let’s take a look at some consumer debt statistics for Canada. Nowadays, many Canadians are using their credit cards to cover their day-to-day household expenses. This has unfortunately made their national household debt a record breaking (for Canada anyways) $1.3 trillion. Thirty million people with all that debt…talk about spinning your wheels.

If we break this figure down, $900 billion of this comes from mortgages, while the other $400 billion comes from general consumer debt.

While there are some Canadians who are managing to save more, there are oodles more that are going deeper and deeper in debt every single day. Over the last decade, the household debt there has increased 5.5% annually. Way, way more than inflation, and I bet you more than the last raise you got at work too, that is, IF you got one.

The rising consumer debt statistics in Canada are said to be because of wage freezes, layoffs and a worsening recession. It’s been said that 85% of Canadian households still owe on one or more credit cards. Are you one of them?

What’s particularly worrisome is that 21% of Canadians say that they feel that their amount of debt is no longer manageable. One in ten Canadians polled say that they would not be able to handle it financially if an expense of $500.00 suddenly came up. A measley 500 bucks!