Reasons Why Canadians Are in Debt – What to Know

Canadians are not foreign to debt. In fact, the average Canadian owes $8,500 in consumer debt—not including their mortgage. About 12% of Canadians have consumer debt amounting to over $25,000, while 14% have debts that range between $10,000 and $24,999. 

This is bad news, considering how difficult it is to pay off a debt, especially if it’s attached to a high-interest rate. If one doesn’t have the capacity to pay it off right away, the numbers will continue to climb, making it all the more difficult to pay them down. Couple that with one’s usual expenditures, people who have incurred so much debt will likely spend years paying it all off. 

No one wants to be burdened with debt forever. The best way to get out of this predicament is to understand where the risks are. There are many reasons why people fall prey to debt, and being familiar with them can help people avoid making the same mistake and incurring more debt.

Here are the top causes of debt in Canada: 

Misusing credit cards

Credit card debt has always been a problem in Canada, which isn’t surprising considering how easy it is to pay for goods and services with plastic rather than cash. However, if people are not careful, financial trouble is expected. It’s incredibly difficult to climb out of credit card debt, what with the sky-high interest rates of credit card companies. 

Interest rates can be as high as 22% or more, and when one’s outstanding balance increases, the interest of the amount paid can be overwhelming—even crippling. Unless people have the capacity to pay your balances in full, it’s important to avoid reliance on credit cards to prevent getting buried in debt.

Lack of savings

It’s always good practice to have a bit of money saved and tucked away for a rainy day. People never know when something unexpected may happen, causing anyone to spring for unforeseen expenses. If one doesn’t have savings, payday loans with astronomical interest rates, borrowing money from friends and family, and credit cards may take the hit just to cover the expenses and act as a band-aid solution. It’s essential to always save at least a bit of money whenever possible to have some cash to spend on a rainy day.  

Loss of income

This is something unavoidable, but it’s one of the most common reasons why people find themselves in debt. Sometimes, no matter how secure people think your job is, nothing is really set in stone. As mentioned previously, everyone should have some savings to cushion the blow. Ideally, people should have an emergency fund of at least 3 months of expenses to have financial security. That way, anyone can come out unscathed since emergency funds are available.

Financial illiteracy

Not having a complete understanding of how money works will put anyone in debt. Overspending, living beyond your means, refusing to save, and other fiscally irresponsible habits often lead to debt. There’s no easy fix for this one, save for your willingness to impose self-discipline when it comes to spending. You would need to learn how to budget, save, and sacrifice to secure your financial future and live debt-free. 

In Conclusion

There are many other ways why people find themselves in debt, but the aforementioned are the most common reasons. Many people are guilty of at least one of them. 

Currently having trouble tackling credit card debt or any kind of debt? DebtHelpers.ca can be of assistance. We’ve helped thousands of Canadians achieve debt relief and financial freedom—we want to do the same for you.