Credit Canada

As many Canadians turn their attention to their RRSPs, many others are finding saving is far down their list of priorities.

In fact with household debt-to-income levels reaching a record high of about 145%, tackling over spending and paying back loans is a more pressing concern for many families.

With interest rates currently at historic lows, debt counsellors say now may be the ideal time to attempt to get personal finances back on track. Especially as the window of opportunity is expected to start closing when the Bank of Canada begins raising interest rates later this year.

“You have six months before interest rates begin to rise,” said Laurie Campbell, executive director of non-profit agency Credit Canada. “People need to get rid of their high-cost debt now.”

Canada’s central bank has cited high household debt levels as a key concern that may pose a threat to economic growth if it’s not tackled. Personal bankruptcies jumped 41% in the third quarter of last year, taking them to the highest level since 1991 as a percentage of the population.

Mortgage delinquencies, the number of housing loans with payments in arrears by three months or more, rose by a half last year, according to BoC figures.

Canadians also have high levels of outstanding credit-card debt. Most cards charge rates of about 19% to 20%, though some retail cards may charge as much as 28.8%.

Debt experts said the first step for anyone concerned about their debt levels is to find out exactly what they owe. With debts often spread across different credit cards and banks at different rates, it’s surprising how often people lose track of their own position, they say.

“Understand your cards and who you owe,” Campbell said. “Get rid of the most expensive ones first, people often don’t understand just how much interest they are paying on some of these cards.”

The next step is to work out a budget and stick to it. Even small changes, such as cutting out the morning latte, can make a difference to the bigger picture. After a couple of months, many people manage to adapt their lifestyles to the more minor changes and make some inroads into their debt, they say.

However, for those who find themselves too far underwater the best course is to turn to professional help as soon as possible.

“Look for a registered trustee, someone who is licensed by the government,” said Paul Salewski, senior vice president at Ottawa-based credit counsellor Doyle Salewski. “Most trustees will give a free consultation, but stay away from agencies that promise the earth.”

The warning signs for when it’s time to seek help include using one credit card to pay off another, using credit cards to pay day-to-day living expenses, fielding constant calls from banks and collection agencies and even constant fighting with a spouse on financial matters.

Salewski recommends taking stock of the assets you have available. Many people are often house rich and cash poor. One solution may be to downsize to a smaller property, unlocking some of the value accrued in your house.

“Bankruptcy is not always the only option on the table,” he said.

According to Campbell, the biggest culprit for personal debt problems is usually not the mortgage, but the plastic in your pocket.

“Credit cards are the biggest culprit in debt problems,” she said. “You only need one all-purpose credit card.”

*Material reprinted with the express permission of Canwest News Service.