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  • Here's a shovel. Fill the hole, or dig deeper.

    by:
    Laurie Campbell

    In light of the above headline, I hope you’ll excuse me when I say that household debt problems in Canada is becoming a grave issue. While mortgage-debt has been slowing, the same cannot be said of non-mortgage debt involving the purchase of cars, home improvements, furniture, and the like.

    Average household requirement for debt help reached record levels some time ago, and it is only growing.

    Today, the average consumer non-mortgage debt load is almost $27,500, an increase of $1,500 over last year, according to a new report by TransUnion, one of the country’s largest credit bureaus.

    The news indicates a swift, recent rise in household debt since the 2008 financial crisis and Great Recession. TransUnion’s numbers also dash hopes that Canadians would heed warnings from the Bank of Canada that household debt was threatening to get out of hand.

    Here’s what TransUnion spokesman Thomas Higgins told the news media last week.

    “After the recession, we had the non-mortgage debt per person - the growth rate – decelerating. We got down to one per cent (in the fourth quarter of 2011) and then went right back up again in the last three quarters, from two, to four, to almost six per cent. That’s definitely a concern.”

    So, outside of real estate, what exactly are Canadians so hurriedly buying with their not yet hard-earned money and then requiring so much help with debt?

    Well, auto loans are at the top of the heap growth wise, rising by nine per cent year over year to $19,345 on average. Next come installment loans, which jumped 6.7 per cent to an average of $23,224 as Canadians put money towards things such as home improvements, new furniture, and RRSP investments.

    Credit card debt, where growth had showed some promise of levelling out, inched up for the first time in two years. With a 1.8 per cent seasonal surge in the last quarter of 2012, credit card debt now averages $3,337.

    The good news from TransUnion is that more Canadians are at least paying their debt bills on time. The credit bureau noted delinquency rates remain low and are falling in most areas.

    Our take on all this at Credit Canada Debt Solutions shouldn’t surprise anyone. Our clarion call to offer debt help is that Canadians should stop spending and start saving.

    The global economy remains on shaky ground, and what goes around comes around. We all ought to be prepared for financially challenging times. Besides which, with savings you are always better equipped for good times or bad times.

    It’s a win-win situation.

    Or maybe take the advice of a wealthy fellow, but frugal spender, by the name of David Chilton, known for having written great how-to books about personal finance, including The Wealthy Barber and more recently, The Return of the Wealthy Barber.

    Last fall, the Canadian author and Dragon Den TV star entertained everyone at a gala dinner in Toronto sponsored by Credit Education Week Canada. Through a funny, insightful keynote speech he offered some words that really stuck to me.

    David noted that although he’s rich enough now to own mansions in cities around the world, he still lives in the same 1,100 square-foot home he bought years ago. He said he doesn’t spend much, because he doesn’t need much. And he’s happy as a puppy.

    I think David’s words really get to the heart of the matter about household debt requiring debt help. It’s just a simple matter of understanding the important difference between wants and needs.

    Or put it this way, you’ve got a shovel, now how do you intend to use it?

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