May 11, 2012

Some people claim that the worst is over, that we’ve all seen the light and are on the road to debt freedom. In a Vancouver Sun article yesterday the banks have joined the chorus singing praises to Canadians for hunkering down to cool their debt obligations. The banks use the slow down in the economy as a reason not to raise interest rates. This is the reason people are borrowing less.

Many credit counsellors see it differently. We view the problem at a more specific and personal level. We see individuals and families stuck in their dependency on credit because they do not earn enough to meet all of the basic expenses. For them it is not a matter of choice. People are saturated at their debt levels and cannot borrow too much more. This is why some of the borrowing is slowing down, but let me tell you, it’s still happening.

One somewhat neutral measurement of consumer debt is the Bank of Canada’s weekly financial statistics which show that, in March 2012, the seasonally adjusted figure for the total consumer credit outstanding was $486,163 billion. This is up from the Bank of Canada figure of $486,011 billion in Feb 2012, not down.

Next point – it’s taken over 35 years of borrowing for Canadian consumers to reach these levels. They didn’t just go shopping yesterday. Our usage and addiction to credit goes back to the 1970s.

What gets lost in many of the discussions about debt is how individuals and families can neither get out of debt nor stop using credit. One reason for this is the current interest rates on credit cards. Some charge a whopping 28% even though the Bank of Canada’s interest rate is next to zero as their overnight target rate sits at 1%.

Another thing that gets lost is how credit card interest rates have not dropped significantly since all of the record low Bank of Canada prime rate. Why is that? People even expect the gas companies to lower the price of gas when their costs drop.

The high cost of housing further factors into the cash drain and dependency upon credit. This leaves less money available for basic and essential family expenses and forces people into longer term mortgages that will end up costing more than three times the amount later.

And what about transportation costs? Look at the price of gas and how it has affected the inflation rate recently. Does this not impact the millions of commuters and families shuttling their children to school, day care centres and sports activities?

Credit counsellors understand the hidden role that the price of cars and all of the associated costs play in today’s family budget. Car insurance, maintenance costs plus gas and the car payments – for not just one but for working families, two cars. Transportation costs have long been a silent or invisible force eventually pushing many into insolvency or bankruptcy.

Finally, there is the cost of raising a child. Roger Sauve and Camille Cornell in June 2011 (published in MoneySense Magazine) estimated that it costs $243,660 as the total cost of raising a typical child to age 18 (in other words, until the day before his or her 19th birthday). All of these costs rise and form part of the inflationary spiral that impacts working individuals and families and not only nurtures them into a deep hole of household debt but keeps them there.

Remember, if you are experiencing financial difficulties do not wait. Call Solutions Credit Counselling at 1(877)588-9491 or fill out our Debt Consolidation Questionnaire and get your Free Credit Counselling Advice today.

For more information visit Debt Canada - your Canadian credit education centre.

If you are a woman in debt, speak with Women and Money first. We specialize in helping women with their personal and business financeMoney management advice you can count on!

We have created this website for public use. Every reasonable effort has been made to ensure that the information presented is current and accurate. However, users of this website should verify information before making decisions. We do not provide legal advice, and the information provided on or through this website should not be seen as such. If you have a legal problem, we encourage you to contact a Lawyer in your community for assistance.