Debt woes grow­ing for At­lantic Cana­di­ans

Cana­di­ans car­ry­ing av­er­age debt of $22,000

The Aurora (Labrador City) - - PUZZLES - BY JAMES RISDON

It started with a car ac­ci­dent. Beaver Bank, N.S. res­i­dent An­gela Mack­in­non­daoust was left with the de­ductible to pay for the re­pairs and an­other $2,300 in body­work needed to pass an up­com­ing ve­hi­cle in­spec­tion.

Strapped for cash, she put it on her credit card.

When that same car was to­talled in an­other crash only three months later, the in­sur­ance money fell $400 short of what was still owed on it. Mack­in­non-daoust, then suf­fer­ing from as-yet-un­di­ag­nosed clin­i­cal de­pres­sion, felt the need to pick up her spir­its.

So, she be­gan to shop.

“You get a lit­tle high from buy­ing small things, like a hair­clip,” she said in an in­ter­view ear­lier this month.

In less than two years, those first few lit­tle things and sub­se­quent pur­chases sent Mack­in­non-daoust’s credit card debt spi­ralling out of con­trol.

She wasn’t alone.

John Eis­ner, pres­i­dent of Credit Coun­selling Ser­vices of At­lantic Canada, says con­sumer debt is at an all-time high in Canada. Even af­ter ex­clud­ing mort­gages and car loans, the av­er­age client who walks through his com­pany’s doors – by the time he re­al­izes things are fall­ing apart – is car­ry­ing a debt of $28,500.

“That’s un­se­cured debt … car­ry­ing an in­ter­est rate of 19 to 30 per cent in­ter­est,” said Eis­ner in an in­ter­view. “That’s a prob­lem.”

Ac­cord­ing to credit rat­ing agency Equifax Canada’s lat­est na­tional con­sumer trends re­port, the av­er­age con­sumer debt rose by 3.3 per cent in the sec­ond quar­ter of this year com­pared to the same pe­riod last year, climb­ing to $22,595 even af­ter ex­clud­ing mort­gages.

New­found­lan­ders are car­ry­ing more than that, at $23,627, and so are New Brunswick­ers who have an av­er­age con­sumer debt ex­clud­ing mort­gages of $23,221. Nova Sco­tians are less in­debted than the na­tional av­er­age with $22,504 and Is­lan­ders have the low­est av­er­age con­sumer debt in At­lantic Canada at $22,448.

But those debt loads are climb­ing. In the sec­ond quar­ter of this year, all of the At­lantic Cana­dian prov­inces saw their av­er­age con­sumer debt grow by be­tween 2.4 per cent in New­found­land to three per cent in New Brunswick.

It’s too much for many At­lantic Cana­di­ans. The high­est rate of delin­quency in Canada on con­sumer debt is found in Nova Sco­tia, fol­lowed by New Brunswick. And all At­lantic Cana­dian prov­inces have a higher rate of delin­quency on their con­sumer debt than the na­tional av­er­age, ac­cord­ing to the Equifax re­port.

Regina Malina, a se­nior di­rec­tor of data and an­a­lyt­ics at the credit agency, says that even in the face of po­ten­tial in­creases in in­ter­est rates, Cana­di­ans con­tinue to bor­row more than ever, leav­ing them­selves sus­cep­ti­ble to in­ter­est rate hikes.

“If the in­ter­est rates go up, there will be a lot of peo­ple run­ning into trou­ble,” added Eis­ner. “In the last seven to eight years, in­ter­est rates have been at his­toric lows.”

Credit card com­pa­nies are also de­mand­ing a lot less from con­sumers these days than they did only a decade ago, re­quir­ing them to pay only about 1.25 to 1.5 per cent of their credit card debt as a min­i­mum pay­ment ev­ery month. Ten years ago, those same fi­nan­cial in­sti­tu­tions were ask­ing for min­i­mum pay­ments of five per cent.

That easy credit, though, might not be around for all that much longer.

“When times get tough, the banks will as­sess their risk … and usu­ally the way they do that is by rais­ing their rates,” said Eis­ner.

De­spite the spec­tre of loom­ing in­ter­est rate hikes down the road, many Cana­di­ans use three or four credit cards and max them out, he said.

That’s what Mack­in­non-daoust did. Us­ing five credit cards, in­clud­ing a depart­ment store card with an in­ter­est rate of 28 per cent and four other cards charg­ing 22 per cent in­ter­est, she racked up about $22,000 of debt.

At those rates of in­ter­est, she would have been trapped – if she con­tin­ued to only make min­i­mum pay­ments – for what seemed to her like for­ever. Calls from debt col­lec­tors be­came her per­sonal night­mare.

“I was ashamed to talk to some­one about what I had done to my­self and what I had done with my money. All that debt crushes you.”

Then, a debt col­lec­tor threat­ened her with the loss of her home if she didn’t pay her bill.

Mack­in­non-daoust re­al­ized she needed help.

She found it at Credit Coun­selling Ser­vices, a com­pany whose coun­sel­lors help those fac­ing a chok­ing credit card debt by work­ing with clients to de­velop bud­gets and man­age money.

The coun­selling com­pany also helps clients ne­go­ti­ate a bet­ter re­pay­ment plan with credit card com­pa­nies, although that al­most al­ways means giv­ing up ac­cess to those cards.

“They pull to­gether all of your debt and ra­tion it out. This much goes to this com­pany and that much to that com­pany,” she said. “You pay back the full amount of what you owe but most credit card com­pa­nies will close your ac­count and bring the in­ter­est to zero.”

Spared of the in­ter­est charges, Mack­in­non-daoust was able to pay back her credit card debt in five years.

Credit card debt is of­ten much the same for many peo­ple. Few peo­ple want to ad­mit they’re drown­ing in high-in­ter­e­strate credit card debt. Mack­in­non-daoust, though, has been there. And she says talk­ing about it and seek­ing out the ser­vices of a good fi­nan­cial ad­viser are a must.

“Don’t hes­i­tate to ask for help,” she said. “When it comes to money, peo­ple are ter­ri­fied to talk about it.”

Eis­ner blames a paucity of fi­nan­cial lit­er­acy cour­ses in schools for much of the trou­ble fac­ing Cana­dian con­sumers.

“Half of the peo­ple we see have univer­sity de­grees. They’re not stupid … They just don’t have ba­sic money man­age­ment skills.”

Un­for­tu­nately for some peo­ple, they wait too long to get help. Roughly 18 per cent of peo­ple who seek help from Credit Coun­selling Ser­vices are in­stead re­ferred to a bank­ruptcy trustee to pre­pare either a con­sumer pro­posal or file for bank­ruptcy.

To­day, Mack­in­non-daoust is a buyer for the fed­eral gov­ern­ment and has a side­line small busi­ness sell­ing kitchen tools, food prod­ucts, and cook­books.

Two months af­ter pay­ing off her credit card debt, she qual­i­fied for a car loan and bought her­self a small car.

Now that her fi­nan­cial house is in or­der, Mack­in­non-daoust en­cour­ages oth­ers fac­ing the same fi­nan­cial morass. She en­cour­ages ev­ery­one to fol­low no-non­sense, prac­ti­cal fi­nan­cial man­age­ment, like draw­ing up a re­al­is­tic house­hold bud­get – and stick­ing to it.

“Try it for two months just so you can see where you spend your money,” she sug­gests.

Pay­ing off high-in­ter­est credit cards with a line of credit against home eq­uity at five or six per cent in­ter­est can be a good strat­egy to bring down the cost of in­ter­est pay­ments, said Eis­ner

But the trick with that strat­egy is to avoid us­ing it only as a way of free­ing up those credit cards and then us­ing them to buy even more stuff.

It’s also a good idea to pay with cash. “With cash, you see what you’re do­ing,” said Mack­in­non-daoust. “There are jar sys­tems or en­ve­lope sys­tems where you put money into them (and ear­mark those funds for spe­cific things) and you can’t crossspend.”

As for credit cards, she just sug­gests that peo­ple be care­ful.

“If you have to have a credit card, use only one and keep the limit fairly low, at a level you can re­pay.

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