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Lack of Affordability: Is Personal Debt to Blame?

For the most part, personal debt is considered a way of life these days. A second car, a new dishwasher, an emergency roof repair can all be financed by a credit card or personal loan. That’s why it may not surprise you to hear that the average Canadian owes about $20,000 in consumer debt. Some Canadians are managing well and paying down their debts and meeting their milestones. Some are not.

Affordability is relative

What’s affordable to one person or family may be out of reach for another. Everyone has different priorities and needs. So how are Canadians are coping with living costs and personal debt?  Here are some key findings from our recently released Affordability Index:

  • 31 per cent of Canadians admit that they don’t have enough income to pay for basic essentials.
  • One-in-four Canadians are overwhelmed by their debt load.
  • Women are more likely than men to struggle with affordability, especially when it comes to saving for retirement, saving for a major purchase and affording transportation. They are also more likely to carry heavier debt.
  • One-in-five millennials have delayed having children over the past two years because they felt it was unaffordable.
  • 33 per cent of Gen Xers have no retirement savings, six-in-10 have credit card debt and almost half are paying off a mortgage.
  • Half of Canadians say they’re not prepared for events such as purchasing a home, dealing with unexpected costs, having children or saving for retirement.

The bottom line: most Canadians are carrying personal debt (74 per cent, according to our poll) and a significant number are having trouble meeting their financial expectations and goals. Because of this, some may fall deeper into debt or begin to miss payments, making financial stress worse.

The role of personal debt

Housing prices, inflation, rising interest rates…all these circumstances can make everyday expenses more expensive. Using credit to fill in the gaps can feel like it’s helping in the short term, but soon, it will be time to pay up. The problem is, half of Canadians say their income isn’t enough to let them live a debt-free life. And that’s how a debt cycle is born, keeping people and families struggling to afford essentials while paying down a heavy debt load.

How to get off the roller coaster

Feeling overwhelmed by your expenses? Time to switch things up and stop spinning your wheels. Here are some ways to ease the stress, reduce debt and improve your financial health.

  1. Start by getting your debt under control. There are plenty of ways to do this, but it will depend on your debt load and your ability to repay it.
  • DIY debt control – Choose a plan that works for you. Debt snowball, avalanche or snowflake are all good options. Or transfer your high-interest credit card balances to a lower interest card or line of credit. If you choose this option, remember to cancel your cards or lower the limit once you’ve transferred the balance to avoid adding more debt.
  • Debt consolidation loan – Speak with your bank lender to see if you qualify for a loan which will combine your consumer debts into an affordable monthly payment. This can free up cash each month. You can learn more about a debt consolidation loan and other options here.
  • Talk to an LIT – A Licensed Insolvency Trustee can advise you of ALL your debt options and they are the only debt professionals who can help you file a consumer proposal or bankruptcy.
  1. Do your homework. Don’t resign yourself to being in debt forever. Compare your debt relief options by using an online calculator so you can find what fits you best. Need motivation to tackle your debt? Check out a few personal finance bloggers — like Squawkfox and My Alternate Life — for budgeting advice, debt reduction strategies and resources.
  2. Budget, reduce, save, repeat. Speaking of budgeting, you won’t be able to successfully pay off debt until you know where your money is going. Start with a budget and look for opportunities to reduce your spending. Dealing with debt should eventually free up more cash per month and allow you to start to seriously think about savings – a necessary step in the debt relief process.

Are you finding it harder to afford your personal debt payments? Are you stretching your budget to the limit and it’s still not enough? Connect with us via Twitter to learn more debt relief tips, using the hashtags #DebtSolutions #PaychequeToPaycheque #FinancialEducation

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