These days, more and more Canadians are taking out big loans on cars they can ill afford, with debt management problems lurking down the highway like deer ready to pounce. Used to be that a lot of us would take four years to pay off a car loan. Not any more. Nowadays, we take as long as eight years to pay for a set of wheels. We’re encouraged to do so through low and no-interest loans, and we’re going car-spending crazy. Automakers and financial institutions have been offering cheap financing since the money crash of 2008, and more of us are being lured into car showrooms.
People often go for cars they can’t afford because they aren’t thinking long-term. They’re thinking they can make a $500 car payment each month. But they haven’t come to grips with the fact that they’ll be making that payment for a long time on a vehicle with a $28,500 price tag. It’s come to the point now where many Canadians are trading in old cars for new ones before the old car loan is paid off.
Car loans are on the rise in Canada, and long-term repayment periods have come along at a time when household debt levels are at record highs. For every one dollar Canadians earn, they owe $1.64. Though mortgages account for most of the debt, car loans figure strongly in the picture. Let’s just remember, the debt-to income-ratio in America was 1 to 1.64 just about the time the economy there approached near collapse. What we’re shelling out for big automobile loans – along with all the frenzied spending in our housing market – is raising red flags among some market analysts.
So what’s to be done about the matter? The answer is quite simple. More of us in Canada have to start giving personal debt management serious thought and consideration. To this end, self-help tools can come into play.
I encourage everyone to make use of all the financial education and debt management tools available online – most of them free. Credit Canada, and virtually all major banking and financial institutions, offer such tools. All you have to do is search selected sites by way of keywords having to do with debt management, personal money management, and budgeting.
Meanwhile, here are links to free and cheap apps that can help with debt management.
• Mint.com Personal Finance
Link: Click here to download
Here’s a personal finance app to pull together all accounts so you can see exactly what you owe and what you have in savings, track your spending, and create a budget. The app links directly to all of your bank accounts and credit cards, and it categorizes and tracks your spending. (App is free – for Android and iPhone)
• Pay Off Debt
This app features a “snowball strategy”, which puts debt into the framework of your lowest balance or highest interest rate. The strategy encourages minimum payments on all debts except accounts with the lowest balance or the highest interest rate. As each debt is paid in full, the app acts to highlight the next debt, thereby creating a “snowball effect” for paying off debts. The app also tells you exactly how long it will take to pay off individual debts, and it identifies how long it will take to pay off all debt. (App is $2.99 – for Android)
Put yourself on the road to better debt management now.