Last Month being February of 2011 the Minister of Finance for Canadians has turned his eye to the heavy level of debt loads that Canadians have been piling up on lines of credit.  The debt problem looming that doesn’t seem to get any better, is the continual use of lines of credit being topped up and topped up as the lending institution raises the amount that can be borrowed.  Canadians are falling into the trap of borrowing more and more and getting to the point of making interest only payments with no thought of debt retirement.  Really this type of credit is nothing different than a credit card with lower interest rates yet higher than a typical mortgage.  Lines of credit are accumulating compound interest and causing a huge burden as the borrower has no way of paying them off or a plan in place to do so.

Canadians are in debt to the tune of 1.48 dollars for every dollar they earn.  This would not necessarily be alarming if it was simply mortgage debt.  But lines of credit or worst yet revolving debt such as credit cards that run much higher interest rates will eventually cause many people to go bankrupt.

The attitude of have it now and pay for it later has been adopted by many Canadians as well as Americans and this is one major cause of the debt problems faced by the majority of the working class today.  You’ve probably heard advertisements such as a furniture company that offers no payments until 2015 which is completely ridiculous for someone to do, yet many will.  Just think about this for a moment. Yikes the furniture would be worn out by then especially if you have children.  So if you did this deal you’d be in debt come 2015 with virtually nothing to show for it.

So what is good debt if there is such a thing?  It is debt that you utilize to buy something that appreciates in value for the most part.  A home mortgage is an example of good debt only if you as a consumer can afford the mortgage based on real income.  You should never buy a house that you borrow more than 75% of its value as well as never borrowing more than 3 times your yearly income for a mortgage.  If you can’t afford a home under those parameters then don’t buy one yet.  It’s as simple as that.  Saving up a down payment is the issue and you need to address that instead of locking into a mortgage way above your ability to pay.  There are ways to deal with saving for a down payment.  One way would be to work a second part time job and bank the whole thing.  Find ways to make extra money that you could save up.  Sometimes, if you’re lucky parents will help out with interest free loans that you can pay back later on when you can afford it better.  There are many other ways but all of them take time to implement, so be patient.  Buying a home at the right time is also a wise move.  Follow the real estate pricing and the economy.  In the last few years there are opportunities to buy homes for greatly reduced prices if you were one of the smart ones who still have a stable job and managed to save that crucial down payment.

So how do we as Canadians and Americans solve this problem of bad debt?   Perhaps focusing on good debt and educating consumers, teaching them what good debt is, verses bad debt would be a way of eventually turning this problem around.  Our parents frowned on going into debt for anything other than a house, and if they did have credit cards they paid them off quickly.  A credit card was used only as a last resort and they paid everything in cash only as they could afford it.  Living within your means and knowing the difference between a want and a need is wisdom in action.

A second mortgage as an option when there is sufficient equity in a home to help out with a financial need is sometimes a good way of handling a borrowing situation with a lower interest rate than using a credit card. 

In short start changing your attitude to borrow only when it is absolutely necessary.