Canadian Households Increasingly Prudent Regarding Debt

General debt levels appear to be decreasing in Canada, as households are showing more restraint before moving forward with big (debt generating) expenses. This is a sign that Canucks may have heeded the Bank of Canada’s warnings regarding high debt levels (notice this article dates back to 2012) by taking a firmer grasp over their personal finances.

As long as the Bank of Canada’s benchmark rate remains set at the 1 per cent (as it has been for the past years), there should not be any problems, but the risk of putting households in a tight situation remains.

For example, a Canadian that pays $1,398 per year in interest (the Canadian average for lines of credit) could see that amount increased by $350 if the benchmark rate was to be raised by 1%, and by $699 for an increase of 2%. This may not seem so bad, but combine that with potential credit cards as well as mortgage debt, and households could end up in the red.

Managing Your Personal Finances

To some, managing their finances comes as second nature: they seem to be able to stay away from debt and have a knack for making their income fructify. For others, the same situation may be equivalent to asking a newborn to skate. Luckily, a number of resources and helpful approaches are available to help attain a healthier financial situation.

Creating a budget generally constitutes the first step. Clearly establishing how much income people have at their disposition as well as how much they are actually spending will most likely help them zero-in on some unnecessary expenses and to either fix debt-reimbursement or saving objectives. A simple Excel spreadsheet can go a long way in that regard and some frivolous expenses can be easier to get rid of than one may think –you’d be astonished with how much some people are spending on bars and nightclubs!

The Bottom-Line

There are no guarantees that the Bank of Canada’s benchmark rate will be increased anytime soon or that Canadians will continue to be a bit more frivolous. One thing is for certain though, anyone can take control of their personal finances: it’s a simple matter of determination and acting before it potentially gets too late.