Why Are Canadians Getting Into Debt?
You might work hard, try to save your money, and be frugal overall, but that doesn’t always equate to no debt. In fact, the average Canadian has more than $8,500 in consumer debt, which doesn’t include their mortgages. Everyone’s circumstances are different, but you might be surprised by some of the most common reasons Canadians are getting into financial strife.
A Lack of Monetary Discipline
Many people don’t know how to save money in Canada and can’t help but make unnecessary purchases that put them into debt. Rather than putting away money for a rainy day, they splash out on things that make them happy, like new clothes, appliances, and gadgets. While there’s nothing wrong with treating yourself, this lack of financial discipline can sometimes mean people owe more money than they earn.
Spending More Than They Can Afford
There can be a feel-good factor associated with buying things you like, like a new car, a boat, or a set of golf clubs. No one is begrudging you the finer things in life, but spending significant sums of money on luxury purchases or financing them with expensive weekly repayments can sometimes see Canadians spending more money than they can realistically afford. With less money left over for everyday essentials like utilities and mortgage payments, there’s a genuine risk of ending up in a great deal of debt.
Abusing Credit Cards
Credit cards are convenient. You can spend money you don’t have and then pay the money back when you do have it. However, they’re not that straightforward. Interest rates can be as high as 30%, meaning you might spend almost one-third more on a purchase than the item actually cost to buy.
However, becoming more careful with your money doesn’t necessarily mean you have to give up your credit card for good. You might be able to avoid paying interest if you spend wisely and pay your monthly bill in full.
If you have everything you want and need in life, it might not make sense to set money aside in a separate bank account and let it build up. You might see more value in spending everything you earn for immediate satisfaction.
However, not having savings set aside can sometimes be a recipe for disaster if something unexpected happens, such as a broken appliance, a sick family member you need to visit, or a car repair. Rather than being able to rely on a small nest egg to cover these costs, you might need to rely on lending institutes for loans with high interest rates.
Not everyone ends up in debt because they are irresponsible with their money. In many situations, high inflation and rising living costs combined with wages that remain the same are causing everyday Canadian families to have to borrow money just to afford the essentials. In this situation, seeing a budgeting advisor might be worth your while, along with seeking out additional employment opportunities or a higher-paying job where possible.
Getting into debt is never a nice feeling, but it might help to know why it’s happening so that you can address it at the cause. If you can relate to any of these situations above, now might be the right time to make money management your priority.
Photo: Towfiqu Barbhuiy