That Canadian debt loads have hit historic highs should serve as a wake-up call for many, says a bankruptcy and restructuring expert.
“Not be too doom and gloom but the stats are definitely indicating that we need to make some changes,” said Donna Carson, licensed trustee and partner for MNP Ltd.’s Calgary and Central Alberta regions. “I think it’s getting to the point where people need to take a hard look at their financial future as of today.”
Statistics Canada released numbers on Friday that shows that the gap between the amount Canadians owe measured against their ability to pay it off is as wide as it has ever been.
Canada’s debt-to-income ratio rose to 164.6 per cent at the end of June, the biggest jump in the ratio since 2011. In a dollar and cents comparison, the numbers mean most Canadians owe about $1.65 for every dollar they have in disposable income.
In step with those numbers are borrowing levels, which increased significantly to $26.3 billion in April through June, up $3.7 billion from the first three months of the year.
Carson said Alberta has the highest consumer debt levels in the country — 30 per cent higher than the rest of the nation on average.
A sign of trouble ahead is that debt loads are rising at a time when interest rates are as low as they ever have been. In the past, times of low interest offered an opportunity to pay off debt, particularly the high-interest versions, such as credit cards.
“That doesn’t seem to be what’s happening,” said Carson, who helps individuals and businesses restructure their finances and explore their options.
She can only speculate on why that is, but clearly some are living beyond their means. In Alberta specifically, cost of living is high at the same time as the oil and gas industry is shedding jobs because of low world oil prices.
The numbers of snowmobiles, quads and other “toys” up for sale on Kijiji and similar sites offers evidence that many are realizing they have to down-size their expectations.
Delinquency rates on paying back loans and other debt is also increasing in Alberta.
Insolvencies are another indication of financial pressure.
Those have remained flat in Red Deer region through the first six months of this year compared with last year.
However, Carson said her office is seeing an increase in calls from people looking for credit counselling.
Carson said for those who fear they are getting in over their head, government-licensed companies such as MNP, offer free initial consultation. While many think of bankruptcy as the usual option, licensed trustees can help customers work out proposals to repay their debt rather than resorting to bankruptcy.
If further help is wanted, a fee schedule set by the government based on a percentage is used to keep the service affordable for individuals to multi-million-dollar companies.
Creating a budget is the first step for anyone trying to get a grip on their finances, she said.
“I think a lot of people have never seen it on paper, never tracked it for a month. What does it really cost me a month to buy groceries?”
Next up, catalogue your debt and list who you owe money to and how much. “You can’t make changes going forward if you don’t where you’re at today.”
Now, it’s time to see where you can find money to start repaying debt.
Carson said most of the creditors they deal with are willing to work with customers to find ways to repay their obligations.
“I can’t stress enough that people need to ask for advice earlier rather than later,” she said.
One segment of the population that is feeling the financial strain is seniors. Many are facing high cost-of-living expenses and fixed incomes. More seniors also seem to be dipping into their own savings to help their adult children.