Across the provinces, many Canadian’s are struggling to keep up with their finances. Why you ask . . . the simple answer here is because of debt. The longer answer and the reality of the matter is that there are many reasons why we get into debt and how it continues to creep up on us. Being aware of how and why we go into debt can be a good first stop along the way to starting to get a handle on your finances and finally ridding yourself of your debt.
1) Common Types of Debts: Credit Card Debt, Mortgage, Car Loans, Student Loans
Credit Card Debt
Starting things off is credit card debt. If you take a peak inside the wallets many people carry, you are more than likely to see that there will be at least one credit card present – probably way more. The reality here is that most of us rely on these cards to make purchases for a variety of products and services. While re-payment habits vary between individuals, and while some opt to pay off the balance in full each month, others tend to carry a balance from month to month. In many cases, it is also likely that while ideally a person would like to pay their card off each month and not rack up interest, sometimes this just isn’t possible. For those credit card holders who continue to carry a balance each month, this can certainly account for a large portion of ongoing debt problems. Credit cards are often used for large necessities payments, however spending beyond one’s means is also an ongoing problem for many people who live under the weight of debt each year.
Car Loan Payments
Many Canadians also require the use of a vehicle to drive to and from work as well as to all other important destinations each day. Most of these people will require vehicle financing to pay for their car and this can be quite an expensive process. While there are favourable and manageable types of car loans offered through a variety of lenders, these payments can contribute to a lot of debt if borrowers are unable to keep up with the payments or have to pay for this loan through another form of loans such as a line of credit. Also if car loans have large interest rates, and if an insufficient down payments then large monthly payments will be necessary. Additionally, making a car loan is likely to be a priority payment as you will not want to lose the use of your vehicle and as a result other payments could fall at the waist and add to unpaid debt volumes.
Mortgage Debt
Homeowners are all too aware of this type of debt. The price of homes can be quite high depending on where in the country you live. However, in certain areas as these prices work in home sellers favours, if they can earn a decent profit from the sale of their home to put towards their next home. For first time home buyers though, they can expect to have high priced mortgages to pay for and this type of loan is likely to be one of the largest and most costly loans, which can be a huge factor in high debt accumulation.
2) Student Loan Debt vs the Job Market
I am giving Student Loan Debt a category of its own here, as it is an unfortunate reality and issue for many young Canadians. As student loan borrowers attempt to enter the workforce, they are also likely to graduate with high debt levels. Regardless of having a plan in mind of paying off their debts in only a few short years, recent research has actually revealed that the average student loan takes closer to 10 years before it is fully paid off.
As students struggle to even find jobs, this most likely means that they can not start paying back their loans right away and this repayment process may not even begin for quite some time. As these young adults find the need to take out additional credit to meet their growing financial responsibilities, they are forced to increase their debt even more. In addition to taking longer to pay off their loans, this problem is only exasperated by the fact that they are typically less experienced with dealing with debt in the first place.
3) Bad Credit Leads to Difficulty obtaining future Loans
As debt continues to grow, not only does it make it more difficult to keep up with financial demands, it also greatly impacts your ability to secure future loans. This is because having large amounts of debt and poor repayment history can lead to a negative credit score. Therefore, it is important to be aware of how quickly your credit score can be affected. Even with one missed payment, your history will reflect this and if there are more instances of missed or late payments, then your score will fall quite significantly. Other elements aside from payment history can derail your score and carrying a credit balance that is too close to the actual credit balance can also be major factor.
Additionally, if you need to buy a house or take out a loan for a car, for example, the likelihood that you will run into some obstacles with obtaining this loan is a very real possibility. Even if you do find lenders who will approve you for a loan, often times the interest rates and overall loan features are less favourable. Ultimately, if your credit score is in rough shape, you really can’t afford to negotiate these terms and as a result often you will have to settle with the terms you are given.
There are many issues that can arise as a result of debt and these topics barely scratch the surface. In Canada, as well as other parts of the world, debt is an ongoing problem. While having some ongoing debt is actually quite common, it is still important to know how much is too much as well as being aware of the specific factors that can lead to elevated debt levels -knowing this can help us attempt to counteract it and improve our finances moving into the future.
