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By Marta LoFranco, Manager of Marketing, Communications & Outreach

November is Financial Literacy Month

November 8, 2019Financial Fitness

November is Financial Literacy Month, where Canadians are encouraged to invest in their financial well-being. This means taking control of finances and reducing overall financial stress by making a budget, having savings and a debt reduction plan. Many Canadians are living in financial chaos that is related to debt but there is a way to manage it.

Do you remember the first time you needed to borrow a substantial amount of money? When I was pregnant with my third child, I totaled the family car in an accident on my way to the grocery store. I was okay but the car was not. We didn’t have extra cash on-hand to replace our only vehicle, so I mustered up some courage and called my dad. He was relieved I was okay and agreed to loan us $5,000 to purchase another used car. It took us a couple of years to pay off this loan. I’ll never forget how great it felt to make that last payment – knowing the car was finally ours.

In the late 80’s and early 90’s, debt was not encouraged in the same way it is today. We had double digit interest rates and the total household debt to income ratio was 88%. Today, that number has risen to 177%, which is almost double what it was in 1990!

A recent Ipsos survey, conducted on behalf of the accounting management firm MNP1, found some staggering stats:
  • Nearly half of Canadians are less than $200 a month away from not being able to pay their bills or meet debt obligations.
  • 47% of Canadians believe they could be in financial trouble if interest rates continue to rise.
  • Over 40% of Canadians have feelings of guilt for the amount of debt they have taken on in their lives.

Acquiring debt does carry risk and that’s why it should be managed wisely. Even debt for items that the majority of people borrow money to pay for, like an education, a mortgage and a vehicle, should be considered carefully.

Things to consider before taking on debt
  • Make sure your repayment amount isn’t more than you can reasonably manage. Ideally, you should budget to spend less than 30% of your gross salary on housing and your total debt repayments should be less than 43% of your gross salary.
  • Ask if the loan you are seeking is secured.
  • Research and look for the best interest rate and ask if the rate is guaranteed throughout the term of the loan.
  • Ask your lender if you need to insure the loan in case of illness, disability or death — this may require an extra fee or you may purchase additional insurance from your current insurer.

Canadian consumer debt is at an all-time high and Canadians continue to borrow money for non-essential items. In 2016, Equifax Canada reported that by the end of the third quarter, Canadians owed $1.7 trillion in consumer debt (excluding mortgages).

Oftentimes, we get wrapped up in our desire to acquire more for ourselves when we may already have enough. If you are currently in a high debt situation there are some changes you can make immediately.

6 tips to manage debt wisely

1. Pay at least the minimum on each debt — pay off as much as you can each month. Try to pay more than the minimum owed but never pay less to protect your credit rating. Always pay down the loan with the highest interest rate first and as you pay off each loan, start paying more on your next debt.

2. Ask for a lower interest rate — if you have a good history of paying on time, your lender may be willing to reduce your interest rate. It doesn’t hurt to ask.

3. Stop using credit cards — it’s easy to overspend when you pay with a credit card. Put the cards away and don’t use them to purchase anything until you’ve paid them off.

4. Consider a consolidation loan — reduce your interest charges by grouping all of your debts into one low-interest loan. You could consider a home-equity loan or a line of credit. However, you must stop accumulating debt while you pay off the consolidation loan.

5. Reduce your budget — look at where you could cut back on things like dining out and other non-essential purchases. Use this money to pay down your debt!

6. Talk to a professional — managing debt is easier with the help of a qualified and trustworthy Financial Representative who will help you categorize your debts, assign measurable goals and set realistic plans to reduce and eliminate your debts as efficiently as possible.

If you would like to set up an appointment to speak to a FaithLife Financial Representative to help you improve your financial well-being, please contact us here.

Source:

1IPSOS Study, Conducted March 2019 on behalf of MNP LTD., sourced October 2019.