Canadian Household Debt at Record High: How This Affects You | Refresh Financial
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Canadian Household Debt at Record High: How This Affects You

rising-debt

Canadians are borrowing more than ever before as household debt across the nation has reached a record high. Low-interest rates seem to be the culprit, enticing middle-class Canadians to borrow more than they might if rates were higher.

For every dollar of disposable income, Canadians owe $1.68. Despite the fact that there have been many measures taken by federal and provincial governments across Canada to slow the growth of household debt, it rose 2% in the second quarter for 2016.

So, what do these rising numbers mean for you, the average Canadian?

Lower Financial Security

The Bank of Canada has warned that high amounts of debt in Canadian households can threaten financial security, leaving Canadians vulnerable. People who carry large amounts of debt will eventually need to cut back on their spending, and when a lot of people do this, it can have a slowing effect on the economy. Reduced spending across Canada can lead to layoffs, fewer jobs, and lower salaries, leaving those carrying a huge debt load vulnerable to defaulting on those debts. If a lot of Canadians begin to default on the huge amounts of household debt they carry, banks and other lenders will begin to report losses and the economy could plummet into a recession.

It’s as though the Canadian economy is teetering on the edge of a cliff and each increase in household debt shifts the weight closer to the danger zone. It’s a fragile balance, and Canadians should be concerned.

With that said, however, there are small statistics that shift that weight back onto solid ground. For instance, the speed at which Canadians are accumulating debt is slower than it was before the recession that hit the Americas in 2008. Canadians are also using a good 14% of their disposable income to pay down their debts, and the percentage of household debts attributed to mortgages has not grown at all this year. Financial analysts seem to believe these are encouraging things to note.

So, how should you make use of this information?

Focus on paying down your debts as fast as you can.

Don’t let your debts exceed what you are able to pay back.

Try to avoid borrowing until you’ve got your current debts under control.

Do you see rising household debt as a problem for Canadians? Why or why not? Let us know in the comments.

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