How to Safeguard Your Finances in the Face of Debt

Canadian households are navigating treacherous financial waters as mounting debt threatens their economic well-being. Recent research from TransUnion and Equifax Canada shows a concerning trend of rising personal loans, credit card usage, and payment delays. The number of personal loans and credit cards with payments at least 90 days past due rose 8.01% nationwide. Things are particularly alarming in Ontario which saw the largest increase of 15.12% in outstanding debt. In the second quarter of 2023, the total balances on credit cards reached an unprecedented level of $107.4 billion, according to the Equifax report.

These findings serve as an urgent call to action, underlining the need for Canadian households to seek and acquire timely and practical guidance on fortifying their finances and securing their financial future in the face of burgeoning debt levels.

An increasing number of Canadians are struggling to manage the higher costs of day-to-day living. Elevated prices, be it grocery or gas, are forcing consumers to often turn to their credit cards to bridge the affordability gap, says Anne Arbour, financial educator at the Credit Counselling Society, a registered, non-profit service for consumers.

Key Culprits Behind the Debt Surge

The escalating cost of living is causing average Canadians to struggle to make ends meet. From food prices to transportation costs and from housing costs to travel expenses and other essentials, stubborn inflation has impacted all aspects of the economy.  “Increased interest rates are also certainly playing a part as variable rate loans are now more expensive, and as people renew their mortgages, they are seeing their monthly payments often doubling or more,” points out Arbour.

All of this, she adds, is putting increased pressure on already stretched monthly budgets pushing people to carry higher credit card balances, either through increased use or inability to fully repay monthly balances.

How to Deal with Your Debt

Gaining greater clarity on true numbers around your expenses is a good place to start. “Whether that’s sitting down with one of our accredited counsellors for a free, full financial analysis, or sitting down at your own kitchen table, putting pen to paper to all your sources of income, all your regular expenses, and any recent unplanned expenditures,” says Arbour.

Such an analysis could uncover a treasure trove of actionable information to show where there might be opportunities to “make some adjustments to free up some extra cash to direct towards your debts,” she adds.

Next, create a list of all your debts, their interest rate, due dates and required payments. Look for options to consolidate with one of your creditors at a lower interest rate. Can you call your credit card provider to move to a lower interest product? It may be a long shot but is worth trying. “Any change in carrying costs you can make will go a long way in helping you repay your debts faster,” Arbour contends.

Make use of the numerous online budgeting and debt management sites that offer a wealth of insights. Online sources such as mymoneycoach.ca offer handy tips on prioritizing debts using the avalanche or snowball methods of repayment can help you make progress, Arbour notes.

Money Saved is Money Earned

One of the ways Canadian families can prepare for economic challenges and build a more secure financial future is through the time-honoured practice of saving.

“Making savings a habit is the short answer,” says Arbour. “It doesn’t have to be a big amount – even spare change into a jar will add up – but get into the mindset that savings should be an intentional part of your monthly budget, and not an afterthought.”

Those living paycheck to paycheck know that there is usually ‘more month than money’, “so waiting to see what’s left over doesn’t really work,” she adds. Making savings automatic proves to be far more effective in such situations. “Putting [money] in an account that isn’t too convenient to access is a good way to protect ourselves from ourselves,” Arbour argues.

No Better Time for Financial Education

In today's complex financial landscape, financial education is the tool that empowers average consumers to navigate confidently toward a more secure financial future. It decodes the cryptic language of finance and enables individuals to make informed decisions and chart their own financial destinies.

Information is power. “Money can be a really intimidating thing for many people, so arming yourself with knowledge is the first step to building confidence and capability,” says Arbour.

GetSmarterAboutMoney.ca, CPA Financial Literacy Program and Financial Consumer Agency of Canada are some of Canada's most popular financial education websites that provide information on a range of topics including inflation, banking, personal finances, investing and budgeting. “There are so many options available today for in-person or online learning, there’s really something for everyone,” says Arbour.

She cautions, however, against the perils of taking advice from unqualified social media mavens. “There are many ‘finfluencers’ and ‘Fintokers’ out there who might not be the best source of information,” she says.

Comfort is Key

These are challenging financial times for many of us, but there is support out there for anyone feeling overwhelmed or stressed about money. “Reaching out to us for free, non-judgemental support is an easy phone call or click away,” Arbour exhorts.

Find a trusted source and make sure you are comfortable with the plan, she adds.