You can also contact us by clicking here. Nina Dragicevic
Many young Canadians are in debt due to inflation, rising housing prices and high interest rates.
Scott Terrio is constantly seeing it. According to the manager of Consumer Insolvency, the average Canadian credit card balance is $4,500. However, the young people he dealt with last year had an average debt exceeding $12,000.
Terrio assists clients in negotiating with creditors to avoid bankruptcy, if at all possible. She works for Hoyes, Michalos Licensed Insolvency Trustees. He said that when he looked at the 2023 filings he made for his clients in Ontario aged between 18 and 29, the average credit card debt had increased by 34.5 percent since 2022.
Jeffrey Schwartz is the executive director of Consolidated Credit Counseling Services of Canada Inc. and he notices a similar trend. The non-profit national organization works with Canadians primarily on debt restructuring and education, but sometimes sends them to insolvency companies if the situation is desperate.
Schwartz, speaking of his firm’s clients, said: “We compared Q1 2023 with Q1 2024.” We’ve seen that debt load for people under 40 in our clientele has increased by about 27%. When people don’t make that much, or anything at all, more money, it suddenly becomes a bigger challenge.
He added that this is a significant demographic for Consolidated Credit. More than half of Consolidated Credit’s clients are younger than 40.
Terrio stated that his clients have a “typical Canadian financial history” — a first credit card when they are 18 years old, a student loan at 19, and then the card companies increase the limits and the consumers accumulate debt. These people, seeing the debt load they have, then transfer their balance to a credit line with a lower rate of interest.
Terrio says that now, the people feel relived and continue to spend.
He said that once they convert their debt into a credit line, consumers should stop using their credit cards and only live off cashflow. Their debit card is unused while they continue to use credit.
Terrio: “They don’t know how to cut their cards, so they run up their Visa again.” The banks now have you on their books for the rest of your life.
Terrio says it is the same old story and criticizes ever increasing limits placed on young people, when their financial literacy levels are at their lowest.
He said, “I am always the person they have first spoken to in order to help them with their finances.”
However, it’s difficult to ignore the current state of the market.
Schwartz noted that Canadians feel the pinch between their incomes not keeping up with rising costs of living and the housing crisis in many markets.
Schwartz explained that managing debt and spending becomes an act of balance, particularly for young people.
He said that with the introduction of social media and the ease at which people can purchase something online, they have started adopting these behaviors to try and keep up with friends and relatives.
The so-called “lifestyle creep” is when someone starts making more money and then just spends more.
Schwartz explained that some people may think they’ve won the lottery and will spend wildly after a small increase. It’s hard to break old habits that have been instilled for years.
Schwartz advised that to avoid this, you should track your spending carefully — there are apps available for this — and postpone milestones like moving out of the house or buying a vehicle if possible. To avoid getting into debt, you should build up an emergency fund to cover any financial problems or if your income is lost.
Schwartz suggested that if possible, people should start building up a reserve fund when they are young.
Terrio advised that you should live within your budget, using cash or your debit card. You can also develop an austerity program to reduce your debt in a very short time.
He said that the summer months can be difficult for those who want to stick to an austere budget because they like to have fun. However, January to March is a great time to keep to your strict budget. Terrio says that up to 40% of non-rental income can be used to pay off debt.
The goal is to get to a tipping point where at least 50% of the debt repayment goes to principal and interest begins to fall. He added that instalment loans should never be used.
Terrio explained: “These $10,000 loans with 36-48 per cent rates of interest — you are done if you take one out.” “You’re never, ever getting out.”
Keep your debt-free status. Terrio advised that you should keep your credit limit as low as possible and refuse any offers of an increase. Stop using your credit cards if you transfer debts to a credit line.
Terrio stated, “You are the one who decides how much you will owe, and not your bank.”
I know that it is tempting. Don’t accept a $20,000 credit card. Instead, take only $5,000. We can help you if your debt is $5,000. It’s possible. You can fix it. “You’re at my office.”
The Canadian Press published this report on May 28th, 2024.