By The Numbers Dont Delay If Youre Dealing With Debt

MNP LTD Trustee Judy Scott was interviewed by The Provice to discuss post-holiday debt. The original article was originally posted in The Province on January 11, 2015.

By Susan Lazaruk
The Province

Dealing with your debt

$28,853

The staggering debt owed by the average Canadian

The amount, which excluded mortgage debt, at the end of last year was at an all-time high of almost $29,000, according to TransUnion, a credit-reporting agency. That doubles to a staggering $60,000 for a two-adult household. And, especially in B.C., that doesn’t tell the whole story because of high levels of mortgage debt, a danger if interest rates climb.

“There is a lot of concern about the mounting consumer debt in the country,” said MNP bankruptcy trustee Judy Scott. “Because it indicates that even with the best of intentions, a person isn’t capable of paying off that debt,” especially when interest rates rise. The domino effect on lenders could be catastrophic for the economy, she said.

20 per cent

Cost of borrowing on popular credit cards

It’s the common rate of interest charged on bank-issued credit cards, and that interest is compounded monthly.

If you owed $28,853 on your credit card and paid $764.50 every month (without charging anything else on the card), at 20 per cent interest, it would take five years to pay off your card. You would have paid $45,870, more than $17,000 in interest alone.

162 per cent

Another dreadful record high for Canadians

Canada’s ratio of household debt to disposable income hit a record between July and September last year, and is close to the 170-per-cent ratio recorded in the U.S. during its recent subprime economic disaster.

That means for every $10,000 in income (after taxes) you earn, you owe $16,200, said MNP’s Scott. She said that number is likely high because credit is cheap: the Bank of Canada overnight rate is at one per cent (down from a 1991 high of 16 per cent).

Interest payments last quarter ate up just 6.8 per cent of disposable income, according to Statistics Canada, the lowest that number has been since 1990. Rates are expected to remain low through 2015, said Scott.

957

Number of British Columbians declaring bankruptcy each month

The province averaged more than 30 personal bankruptcies per day in the first nine months of last year. And at this time of year, long after the Christmas festivities have passed, the debt just keeps on giving, compounded by the looming prospect of layoffs caused by lower oil prices.

Yearly bankruptcies ending Sept. 30, 2014, were at 11,504, down slightly from 11,632 for the same period in 2012-13. Scott said MNP Personal Bankruptcy Trustees start to hear from increasing numbers of people unable pay off their loans at this time of year. People typically put off dealing with the inevitable.

“The earlier you deal with it, the more options you have,” she said.

5

Tips to deal with debt before it snowballs

MNP suggests:

1. Go on a spending diet and keep track of every expense.

2. Take an honest look at the debt and calculate what you earn, how much you spend and what you owe.

3. Pay off high-interest debt first or transfer high-interest debt to lower-interest loans.

4. Consult a professional debt counsellor.

5. Plan ahead for next year and budget for Christmas.

• A bonus tip: Don’t get lured by offers of cheap credit because banks have their own goals to make money as a business, which don’t always jibe with their customers’ goals. “Banks have their priorities and their job is to lend out all the money they can, to maximize their profits,” said Scott.

— With files from Financial Post