That sinking feeling of mounting debt
Why more middle-class Canadians are on the verge of bankruptcy — and how two women fought their way out
Samantha Jones is through with credit cards.
Once her faithful friends, the benignseeming pieces of plastic once let her live a luxe lifestyle — but then landed her in $23,000 of debt.
There was no big blowout, says Jones, but throughout her 20s she travelled a lot, ate out regularly and bought what she wanted without worrying about the cost.
She woke up in her early 30s deep in debt. She knew she had to act.
Despite having a good job working in an administrative role with a college, at the end of each month she was left with only about $20 after paying her bills.
Paying off loans with other loans, she never missed a payment. But the resident of Scarborough’s Guildwood area was under enormous stress.
“Even though my bills were always paid, I had this huge amount hanging over me,” she says.
“I couldn’t sleep sometimes thinking about it,” Jones says of the debt. “I knew I needed help. It was overwhelming.”
Now 35, she decided to approach Consolidated Credit Counselling Services of Canada, a non-profit debt-management agency. She makes one payment a month to the agency, which then pays her debts. It negotiated repayment plans on her behalf with her creditors — all but one of which waived her interest fees. In four years, she expects to be debt-free.
Although government bankruptcy statistics show that consumer insolvencies — or bankruptcies — fell by 12.1 per cent from September 2011 to September 2012, a separate report from Statistics Canada last month revealed that household debt levels are at their highest ever and have surpassed even the U.S.
For every dollar of after-tax income, Canadians now borrow more than $1.64, or more simply, those with about a $10,000 disposable income at the end of each year likely owe more than $16,000.
Such is the concern about mounting debt levels, that both Prime Minister Stephen Harper and Bank of Canada Governor Mark Carney have expressed unease, warning Canadians they are carrying too much personal debt.
And debt experts who head up non-profit associations, like the one Jones approached, firmly believe the low bankruptcy figures don’t reflect the situation on the ground.
Pat White, executive director of Credit Counselling Canada, says one of the reasons for the downturn in the bankruptcy filings is low interest rates. “People can renegotiate their mortgages with additional debt and likely at a lower rate of interest. This will solve their financial concerns in the short term until the interest rates go up,” she says.
“We see people who have no savings and are living paycheque to paycheque, so any change in income sends them over the edge.” JEFFREY SCHWARTZ CONSOLIDATED CREDIT COUNSELLING SERVICES OF CANADA
Between 2011and 2012, the agency had 8.4 per cent more new counselling cases, and 2.5 per cent more new debt-repayment programs. The majority of its clients are married with children. “We are seeing older clients with debt problems, which is disturbing when we expect that those heading into retirement should be debt free,” says White.
Jeffrey Schwartz, the head of Consolidated Credit Counselling Services of Canada, says it’s often the people who appear to have everything that are in the most trouble.
“Money is spent on dining out, entertainment, large cellphone packages, lifestyles beyond people’s means,” he says. “We see the impact on families; the stress on relationships, and marriages. The agency had 20 per cent more people seeking its help in 2012 than 2011. The average debt of a client entering the program is $18,070, with an average of about four creditors. “Unfortunately when we see people, they have reached a crisis point,” says Schwartz. “There might be collection calls, they have bought furniture they can’t afford and payment in full is being demanded.” The biggest threat to Canadians right now is losing a job, Schwartz says. “We see people who have no savings and are living paycheque to paycheque, so any change in income sends them over the edge.” That’s what happened to Rajni Singh, 30. When she lost her job in 2008, she knew there was going to be a problem. She owed about $12,000 to $15,000, on a handful of credit cards, along with a department store card with a hefty balance. “It was overwhelming trying to keep up with all the installments,” she says. “When I was working, I was able to make the payments, but after I lost my job and started getting collection calls, I knew I had to do something.” Acreditor advised her to approach Credit Canada Debt Solutions in 2009. They developed a three-year plan, where she pays $245 a month to the agency, which then pays her creditors. Laurie Cambell, chief executive of Credit Canada, predicts a “significant rebound” in bankruptcies given that so many are just about keeping their heads above water. “We often see people with five or six cards,” she says, adding that the average Canadian has three — and should only have one. “People say, ‘Oh, you must see a lot of poor people,’ but we don’t really. It’s the middle-income families who are being squeezed, because they are trying to keep up with modern living but are really strug- gling,” she says.
“It’s trying to run that second car, having those extra TVs, getting kids tech products for school. In today’s society, these are things that are seen as necessities rather than luxuries. You don’t want to deny your child technology that might help them get on better at school.”
Now a year and a half into paying off her debt, Jones reckons people think she has become a cheapskate. “People have noticed that I don’t spend as much as I used to and they think I’m cheap, but I know what I have and what I can spend.”
Though she is happy with her situation, there is a drawback — her credit rating will be affected because she sought help.
There is a stigma around being in debt for sure. When one bank was contacted by the agency, they immediately put my card into collections and I thought, ‘Hang on, I’ve never missed a payment.’ It was a bit shocking to me,” she says.
“If someone hears you are in debt they think, ‘Oh, she must have been living some hedonistic lifestyle,’ but I wasn’t. It was just everyday things.”
Jones believes it was far too easy for her to get money that wasn’t hers.
“Once I had a good credit rating, I was constantly being offered more and more. It was too much. What do they expect? If you feed someone too much, they are going to get sick.”
These days, she sticks to cash or debit.
Singh, who has now paid off all her debt, agrees there are downsides to seeking help. Even though she’s working again and finished her plan early, she has to wait another six months before she can apply for a credit card.
“I do want a credit card because you need it for certain things,” she says. “But this time, I am just going to have one.”