Top 5 Causes of Debt In Canada – What To Know

Although Canada is one of the wealthiest and most productive countries in the world, it also has one of the highest consumer debt. That isn’t to say that Canadians are spendthrifts: the country has incredibly low-interest rates and trouble-free access to credit along with a rising cost of living. This has pushed Canadians to take on more debt to support their needs.

In fact, according to the Bank of Canada, the average debt of Canadians (not including mortgages) is almost $21,000. Unfortunately, many citizens are unable to repay their debts, which has led to a significant increase in bankruptcies and consumer proposals.

To understand this further, here are the top five causes of debt in the country:

Subsisting On Credit

Credit cards have made it easier for Canadians to make purchases, but it can lead to some dangerous territory if credit cards are treated like debit cards. If one does not have money in their bank account to pay off the credit card bill right away, then the purchase should not be put on credit.

Credit cards come with several tempting offers, like points, rewards, and cashback. However, the truth is that many Canadians carry an unpaid balance at the end of their credit card cycle, pushing them further into debt. As interest rates are at 20% coupled with a minimum payment requirement of only $10, Canadians may find themselves in perpetual debt. Before getting a credit card, one must thoroughly educate themselves on the terms and conditions to avoid falling into the cycle of debt.

Spending Beyond the Budget

Another major contributor to debt in Canada is spending beyond one’s set budget. Thanks to a capitalist society that encourages purchases of all kinds, many Canadians have been living beyond their means. Advertising on social media platforms have proven to be successful, as citizens are constantly being exposed to a roster of products that have been curated to display to the companies’ target audiences, making people more susceptible to overspending.

As the cost of living increases in Canada, many professionals with low salaries may be struggling to make ends meet. For those lured by social media to buy new things and show them off, this is especially precarious behaviour that can easily land them into more debt.

Missing Debt Payment Deadlines

One of the most significant causes of debt is debt that comes with high-interest rates. One missed payment can easily charge a late fee to the borrower, which simultaneously increases debt levels while impacting the credit score. This puts the borrower in a difficult situation, making it more challenging for them to pay their debts on time as fees and charges continue to grow.

Lack of Savings

Although all financial experts stress the importance of saving money, some people have difficulty putting away emergency funds thanks to the expensive cost of living. In the event of a job loss, medical emergency or a major life event, some people will have to turn to loans to support themselves if they do not have savings. This puts Canadians further into the cycle of debt, as the lack of savings can ultimately increase their overall debt. 

Insufficient Financial Literacy

Finally, one of the leading causes of debt in Canada is the insufficient financial education provided to its citizens. Many Canadians lack fundamental knowledge of how to create a budget, how to save, how credit scores work, and the importance of paying off high-interest debt. In fact, this understanding is often attained through their own experiences with money, which can lead to serious debt.

Having a basic understanding of how to manage money and avoid debt is incredibly important and must be instilled in Canadians as early as high school. This provides them with sound personal finance principles that enable them to make wise financial decisions.

Conclusion

Debt is an incredibly tricky obligation to navigate. While it enables citizens to purchase homes or fund their education, it can easily lead to difficult situations if it isn’t maneuvered properly. Seeking the advice of a financial advisor will greatly improve debt management and encourage more timely payments. With enough financial literacy education, Canadians can reduce their debt and live without fear of increasing payments.

If you’re looking for personal debt relief in Canada, be sure to contact DebtHelpers.ca. The range of consulting services and debt solutions are designed to help individuals become debt-free. Get in touch today to see how the team can help!