Tag: non-mortgage debt

MORTGAGE ISSUES BREWING: CANADIANS ARE SERIOUSLY FALLING BEHIND ON DEBT

Post author By Brandon Smith
Post date May 15, 2023

Mortgage issues: Introduction

As per the latest findings from the Royal Bank of Canada (RBC or RBC Economics), a significant proportion of Canadians are currently grappling with debt payments, thereby heightening the risk of mortgage default in the future. The report reveals that the average Canadian owes $1.77 in debt for every dollar of disposable income, a trend that has been steadily increasing over recent years. This development is particularly concerning given the rising interest rates, which are exacerbating the difficulty of maintaining timely payments.

This Brandon’s Blog will explore the RBC report, the truth about household debt, including mortgage debt, in Canada, whether or not we are already in trouble and its implications for Canadian households.

The impact of rising interest rates on mortgage and other debt payments

The RBC report clarifies the negative impact of boosting the rate of interest on debt payments for Canadians. With the way we have seen the rate of interest growing, numerous Canadians are finding it significantly testing to handle their debt payments, specifically those with a variable-rate mortgage or loan product taken out at interest rates at pre-pandemic levels or credit card debt.

Interest rates have risen significantly, with the Bank of Canada’s Target Overnight Rate going from 0.5% in March 2022 to holding at 4.5% since January of this year. Anyone faced with renewing their mortgage is going to be in for a bit of sticker shock. The report also highlights a concerning pattern where a substantial number of Canadians are unprepared to handle the prospective fallout of rising interest rates on their ability to meet their financial obligations.

This RBC report highlights the expanding degree of debt among Canadians, which could potentially cause mortgage issues down the line. As more Canadians battle to keep up with their debt payments, RBC’s experience states that it is most likely that they might start missing mortgage payments. This could lead to serious consequences, such as the loss of their home or even bankruptcy. What’s even more, the report reveals that numerous Canadians are blissfully unaware of the possible dangers related to lugging around high levels of debt.

Understanding Household Debt in Canada

In order to attain a comprehensive comprehension of the ramifications of Canadian household debt, it is imperative to precisely define it. Household debt encompasses the aggregate sum of all financial obligations owed by Canadian households, including home mortgages, credit cards, lines of credit, and vehicle loans. Data released by the Bank of Canada indicate that the customary household debt-to-income ratio has been consistently escalating over the past few years, indicating a trend that is no longer just a blip.

This trend signifies that Canadians are taking on increasingly greater financial obligations in relation to their income. Coupled with the effects of inflation, it is apparent that, on average, Canadian household income is insufficient to meet the customary familial expenditures, resulting in families incurring more debt to maintain their standard of living.

Substantial household debt poses several possible risks to the Canadian economic climate. First of all, it can cause economic instability for Canadian households as they endeavour to satisfy their financial obligations. Second of all, increased degrees of financial obligation may result in a reduction in consumer spending, therefore negatively impacting the overall economy. Finally, households with elevated debt levels will likely be extra prone to default as the rate of interest hikes happens, potentially causing a cascade of defaults throughout the Canadian economy.

Canadians expect signs of trouble in the Canadian economy

Recent data indicates prospective problems surrounding Canadian household debt. In a survey of Canadians carried out by the Bank of Canada between January 27 and February 16, 2023, with follow-up interviews in March 2023, numerous key findings were uncovered.

The key findings were:

Assumptions for the rising cost of living in the coming 1 to 2 years have declined but continue to be dramatically greater than in the pre-COVID-19 period.
While consumers have reduced their price increase expectations for certain goods, such as commodities, inflationary assumptions for services such as rent stay raised.
A majority of consumers believe that the Bank of Canada faces obstacles in successfully lowering inflation because of high government spending and also ongoing supply chain disruptions. However, many remain hopeful that supply chain issues will be fixed within the next two years, resulting in reduced product prices influenced by the disruptions.
Alternatively, those that watch high federal government spending as a relentless inflationary force expect continued interest rate stress in the long term.
The present economic environment is characterized by elevated inflation and also a higher pattern of interest rates, which has actually resulted in installing strain on Canadians, especially those that are making monthly mortgage payments. Consumers are spending less on non-essential services, including leisure travel, eating in restaurants, as well as various other recreational activities.
A considerable majority of Canadians view an economic downturn to be one of the most potential end results for the Canadian economy within the following year. Nonetheless, many people continue to be uncertain regarding the direction of the economy, the labour market and unemployment rates. Such uncertainty has actually caused a tendency amongst consumers to reduce spending and increase savings as a preventative measure.
In spite of economic obscurity, workers show a favourable outlook on the job market, with several certain they could find new employment opportunities, especially those who are discontent with their present jobs. Private sector wage increase expectations are near an all-time high among employees.
Nonetheless, wage growth is expected to fall short of the rising cost of living, with most workers predicting their wages or salary will not equal current inflationary trends in the coming year.

Principal reasons for mortgage issues in Canada

Amidst the prevailing economic conditions, numerous homeowners are facing considerable difficulty in maintaining the escalating expenses associated with owning a home. Consequently, there is an anticipated surge in the number of defaulted mortgage payments in the forthcoming months. This trend is a source of apprehension for both homeowners and lenders.

As per the RBC Economics report, the principal reasons for mortgage-related issues in Canada are:

The rising cost of homeownership includes rising property taxes, insurance costs, and maintenance expenses.
Job loss or reduced income.
Reduced economic growth.
High household debt.
Increasing interest rates. This is especially true for homeowners with variable-rate mortgages, as their payments can fluctuate over time.
Unanticipated expenditures and low or no savings or emergency funds. Some homeowners may have taken on too much debt or purchased a home that was too expensive for their budget. In these cases, failed mortgage payments are almost inevitable.

The RBC report sustains the findings of the Bank of Canada study. It mentions that this might be due to a mix of elements, including climbing living expenses, stationary wage growth, and the high cost of housing. The repercussions of this could be extreme, affecting not only specific homeowners and their personal finances but the entire Canadian economic situation.

RBC states that it is critical that lenders, regulators, as well as policymakers, interact to address this problem effectively. Financial education, government programs and support for those dealing with financial debt can help protect against mortgage issues and defaults.

Consequences of mortgage issues in Canada

Failed mortgage payments can have significant consequences for both homeowners and also for mortgagees. For homeowners, missed payments can result in the power of sale or foreclosure process. This results in the loss of their house.

Potential lending institutions scrutinize credit history and also credit score prior to approving loan or mortgage applications. Uniformity in making payments is essential as it contributes to keeping a healthy credit rating. So being delinquent on debt and home mortgage payments and especially the loss of your house has a considerable unfavourable effect on your credit score and your capacity to get loans in the future.

The financial and mental stress of these mortgage issues cannot be overemphasized. It is vital that Canadians take positive steps to deal with their debt properly. The RBC report stresses the significance of looking for guidance and assistance from trustworthy financial specialists to help you be able to deal proactively with your debt problems before it is too late. By following this guidance, Canadians can protect their financial well-being and also avoid possible home mortgage problems in the future.

Delinquent mortgage and loan repayments can result in economic losses for lenders. Due to their reliance on periodic payments to sustain their operations, any missed payments can cause significant disruptions to their cash flow. This is particularly true for smaller lenders with limited resources as compared to larger organizations. When a substantial portion of a lender’s portfolio consists of delinquent and non-performing loans and mortgages, it can lead to a cessation of operations.

Coping with household debt and mortgage Issues: What Can Homeowners Do?

The RBC Economics report underscores the significance of proactive debt management by Canadians. While elevated levels of household debt may trigger apprehension, there are measures that individuals can undertake to mitigate the risk of financial ruin. One crucial approach is to look carefully at your personal finances and devise a budgetary plan and adhere to it. This can assist households in identifying superfluous expenditures and making necessary adjustments.

Furthermore, households ought to prioritize the repayment of high-interest non-mortgage debts such as credit cards. CTV News reported that non-mortgage debt is up by 5.4% when comparing the fourth quarter of 2022 to the same time in 2021. Seeking the guidance of a financial expert in developing a debt management strategy can also prove advantageous.

In the event of mortgage payment difficulties, there are several prudent measures that homeowners may take to forestall losing their homes. Firstly, contacting the lender and providing details of the financial predicament may yield positive outcomes. Numerous lenders extend hardship programs that facilitate a reduction in monthly payments or an interim suspension of payments.

In the event that you have an insurmountable challenge of making home mortgage payments and the looming threat of losing your home, it may be a good idea to very carefully consider the option of selling your residential property. By doing so, you can properly avoid the damaging end results of defaulting and losing your home and ultimately embark on a clean slate of living in a more affordable home.

All of these recommendations can be found in my May 1, 2023, Brandon’s Blog “MAXED OUT CREDIT? YOU NEED TO KNOW HOW TO INCREASE CREDIT SCORE: OUR 13 INTRIGUING TIPS TO IMPROVE YOUR CREDIT SCORE”.

However, if things have gotten out of control and your creditors are already pounding at the door, making harassing collection calls and possibly even suing you, you need to take immediate action. Contact me anytime by phone or email.

Mortgage issues: Conclusion

The RBC report has brought to the fore the intensifying concern of Canadians back-pedalling on their debt payments. The scenario is rather disconcerting, specifically given the surge in the rate of interest that pose a formidable challenge for Canadians to stay current with their financial obligations.

In addition, higher interest rates and the price of necessities of life have increased concerns about the surging debt levels amongst Canadians and the possible difficulties that could arise in the home mortgage market in the future. It is imperative that Canadians take aggressive measures to address their financial debt management strategies and appropriately plan for the ramifications of this new higher interest rate environment.

I hope you enjoyed this mortgage issues Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy proceedings. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

Brandon Blog Post

LOWEST CREDIT SCORES RATING: THESE CANAD1ANS LED GIGANTIC CREDIT CARD DEBT REPAYMENT

Post author By Brandon Smith
Post date August 25, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Canadians with the lowest credit scores rating led a wave of pandemic credit card debt repayment

Statistics Canada reported on August 23, 2021, that Canadians with the lowest credit scores rating repaid the most credit card debt in the first year of the pandemic. Over the period of the pandemic to January 2021, the mortgage debt of Canadian households increased by a record amount of $99.6 billion, driven by rising home prices, especially for single-family houses. Over the same period, non-mortgage debt fell by a record $20.6 billion, mainly due to a $16.6 billion decline in credit card debt.

In this Brandon Blog, I look at the area of people with credit scores rating and discuss how and why these lowest credit scores rating Canadians were able to pay down their high-interest debt.

Credit scores rating: Credit report and score basics

Credit scores are three-digit numbers derived from your credit report. An individual’s credit report summarizes their Canadian credit history. The Canadian credit reporting bureaus are Equifax Canada and TransUnion Canada. These private companies are credit reporting agencies that collect, store, and share information about how you use credit. As your credit report changes over time, your credit score will change as well. The more responsibly you manage your credit, the more points you get. According to a review of Borrowell Canada members, even a single missed payment can lower credit scores by 150 points.

Your credit score calculation is based on information in your credit report. A credit score between 660 and 900 is generally considered good, very good, or excellent credit scores.

The credit score model has credit score ranges from 300 to 900 that is used to determine creditworthiness. People always ask if there is a “magic number” to obtain better loan rates. This is an age-old question. Different lenders may focus on different aspects of your credit history. So, I cannot give you one number that unlocks the door to the best loan rates.

Credit scores rating: How to check your credit report

Getting a credit card, getting a car loan, or applying for any loan will result in a credit file being opened up on you. The report keeps getting updated over time. Your borrowing history and borrowing experience are all taken into account.

The report contains information about every loan you have taken out in the last six years and whether you pay on time or not, how much you owe, what your credit limit is on each, as well as a list of creditors who are authorized to access your record.

You can get a free credit report on yourself yearly from each credit bureau. You need to submit your ID and background details to prove you are the person entitled to make the request. You can make sure that your credit history report is error-free. Any errors will be corrected by each credit bureau based on the evidence you provide.

A credit rating of R1 is the best. That means you pay within 30 days of receiving your bill, or “as agreed.”

Anyone who wants to grant you credit or provide you with a service that involves you receiving something before you pay for it (such as a rental apartment or phone service) can get a copy of your credit report so they can make a credit decision about you.

R9 is the lowest credit rating.

Average Canadian credit scores rating improved during the pandemic, Borrowell study finds

With Borrowell, a fintech company, you can get your credit score every week for free. From Q1 2020 to Q1 2021, they analyzed credit scores and credit reports of 1,015,369 Canadians, including those in 20 of Canada’s largest cities, to investigate changes in credit scores and missed payment trends across the country.

The Borrowell study came up with several very interesting findings:

Government relief measures, lifestyle changes, and financial shifts have impacted credit scores and bill payments over the past year – sometimes revealing the divergence in how COVID-19 affected different segments of society’s financial future.
In spite of the coronavirus pandemic, credit scores for Canadians actually improved.
The average number of people with missed payments decreased from 3 out of every 10 consumers to 2 out of every 10 people between the first quarter of 2020 and the first quarter of 2021.
From Q1 2020 to Q1 2021, Borrowell members’ average credit scores increased by 18 points, rising from 649 (under the average) in Q1 2020 to 667 (fair).
The risk of missing paying bills on time is 432 times higher for consumers with low credit scores rating.
credit scores rating

The Statistics Canada study: Canadians with the lowest credit scores rating led the wave of pandemic credit card debt repayment

The new StatsCan study, “Trends in household non-mortgage loans: The evolution of Canadian household debt before and during COVID-19“, examines how Canadians reduced non-mortgage debt and debt levels during the pandemic.

During the pandemic, households began to see their disposable income rise, partly due to the limited spending opportunities during lockdowns, as well as the government’s monetary assistance, such as CERB or enhanced Employment Insurance. This was an opportunity for many households to pay down their expensive non-mortgage debt, with unsecured credit lines and credit card balances being paid down at record levels.

Prior to the pandemic, the outstanding balance on credit cards was $90.6 billion in February 2020, compared with $74 billion just a year later. During the two decades prior to the pandemic, the outstanding balance carried on credit cards had increased on average by 20.7% per year.

Debt reductions were greatest among Canadians with the lowest credit ratings, suggesting that those most vulnerable to financial hardship used savings prudently during the pandemic. Home prices increased, especially for single-family houses, as I indicated at the outset, driving a record increase in mortgage debt for Canadian households of $99.6 billion.

For me, this is a mixed blessing. You may be pleased to hear that many Canadians with low credit scores have been able to save money and reduce their household debt. In my opinion, mortgage debt is highly unlikely to have been accumulated by the same people.

People with low credit scores were not the ones filling out mortgage applications. It was rather people with good and excellent credit who either moved up and/or refinanced in order to do renovations, improvements and/or to pay off debt with a high-interest rate. Furthermore, it shows that people with low credit scores can earn more money staying home and receiving government COVID-19 assistance than they could make at their normal job. That is a very sad comment.

Minimum credit scores rating for mortgages in Canada

You can either be approved or declined for a mortgage based on your credit score. It can affect your mortgage interest rate, the type of mortgage available, as well as the mortgage lenders that you can choose from.

A mortgage requires a minimum credit score of:

in the case of major banks, 600;
for B lenders, 550;
private lenders have no minimum requirements; and
for CMHC mortgage default insurance mortgages, 600 points are required.

For a mortgage with bad credit, your only options are B lenders and private lenders, and they may require a large down payment or equity in your home. A lower credit score is generally associated with a higher mortgage interest rate. Low mortgage rates require a credit score of at least 680.

Having a credit score above 600 is good for getting a mortgage in Canada, as it opens up more options. In most cases, CMHC mortgage default insurance is not available to people with credit scores below 600. When you have a low credit score, your mortgage loan application may be denied, your mortgage rate may be higher, or you may be limited in the amount of money you can borrow.

A credit scores rating must be 680+ to qualify for the low-interest rates advertised in the media. CMHC mortgage default insurance is another issue some borrowers need to be concerned about. As long as you have sufficient income and property value to service the mortgage, a low score may suffice, however, the private lender will charge you higher fees and interest rates.

Credit scores rating summary

I hope that you found this credit scores rating Brandon Blog. Credit scores do not always properly reflect people who have problems because they are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

CREDIT CARDS MAXED OUT: THAT SCARY CRUSHING FEELING WHEN CANADIAN INSOLVENCY AT HIGHEST LEVEL

Post author By Brandon Smith
Post date July 21, 2021

credit cards maxed out

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

How do credit cards maxed out affect your credit score?

Your credit score is one of the most important things you have to offer anyone who is seeking to lend you money, whether it’s from a bank, a different credit card issuer, or even a landlord. Your credit score is a sort of credit health report that measures how much you owe, how much you owe on different kinds of credit, and how likely you are to default on payments.

Credit cards can be a convenient and effective way to manage your finances. However, the best use of a credit card may not be the best use when it comes to your credit score. Lenders consider one or more credit cards maxed out as a reason for your credit score to decline.

Right now we have a very unique situation when it comes to consumer debt. The average Canadian’s monthly credit card balance is lower today than it was 2 years ago. People’s credit card balance for months has declined. So it is not the case right now that credit cards maxed out. Yet, a recent poll shows that Canadians’ stress levels about their potential insolvency are the highest ever.

In this Brandon Blog, I look at the issues and provide some tips as to what positive things you can do if you are concerned about insolvency. Let’s look at the issues.

Changing habits as pandemic adds to debt load

There has actually been a surge in total Canadian consumer debt. It came mainly from financial debt growth in home mortgage debt and also automobile loans. Home mortgage balance increases originated from both refinancings of existing home loan debt and brand-new mortgage applications.

The thinking with vehicle financings is that it arose from Canadians acquiring vehicles that they had actually intended to purchase earlier. Concerning home loans, the refinancings were to consolidate higher interest rate non-mortgage debt, for credit products such as credit cards, into a brand-new higher home mortgage amount, at greatly reduced rates of interest.

Throughout the last 18 months approximately of the COVID-19 pandemic, Canadians have actually partially paid for or totally repaid their high-interest-rate consumer debt by turning it into low-rate debt from bigger home mortgages along with residence equity credit lines. They have used their real estate to obtain a debt consolidation loan.

Now that the Canadians have in fact done that, the Ipsos survey discovered that 50% of Canadians are now more worried about not having the capability to repay their financial obligations than they used to. Yet one-third of respondents say they will spend more as the economy resumes.

As the economy slowly resumes, many Canadians are looking at a great amount of debt incurred during the pandemic and are stressed over making ends meet without taking on even more financial obligations. They have maxed out the possibility of getting even more cash from their homes.

The reasons are that either there is no more asset value to borrow from and/or their income cannot sustain any more financial obligations. So where is one of the most likely areas this brand-new financial debt is most likely to come from? Paid down credit cards are going to increase once more and many will sooner rather than later have credit cards maxed out from additional credit card debt.

Canada on verge of widespread insolvency and restructuring surge in COVID-19 new normal

Statistics Canada recently reported that overall household debt increased by 0.8% for the 2nd straight month to over $2.5 trillion. Mortgage debt and also home equity credit lines made up $1.98 trillion of that total amount. Over the initial 5 months of 2021, households had $57.5 billion in home mortgage financial obligations, compared to $34.3 billion over the exact same time period in 2020.

At the same time, non-mortgage debt climbed by 0.4% in May to $786.2 billion. Growth in credit card debt as well as other personal loans was the main driver. While charge card debt rose for the third month straight, it was still down by 3.3% from May 2020.

These statistics seem to bear out my thoughts that Canadian consumers now have no more room to borrow against their homes, so now, they will need to turn back to their credit cards and increase their credit card debt in order to fund their expenses. This will not turn out well in the long run. I foresee people having maxed out the amount they can borrow against their homes and then once again having their credit cards maxed out.

Lots of people do not understand how financial problems are created pushing individuals to seek out a remedy such as bankruptcy or a consumer proposal to restructure. The majority think that people get into financial trouble because they can’t properly handle their money. However, in most cases, it is because of an unforeseen trigger. Divorce, job loss, illness and the present pandemic are examples of triggers.

People in financial trouble feel shame and unfortunately, stop them from connecting with us early. Reaching out to a licensed insolvency trustee early is so important.

Credit cards maxed out Is a bad idea

By maxing out your credit cards you’re boosting your credit utilization ratio. This accounts for 30% of your credit score. As such, a maxed-out credit card can adversely impact your credit rating.

Theoretically, yes, you can pay off your credit card by just making the minimum payment. However, it can take you years to pay it off if you are only making the minimum payment. Your interest charges will be higher than your minimum monthly payments.

Your credit utilization ratio and therefore your credit score will suffer. Many people try to solve this problem by just applying to the credit card issuer for an increased credit limit. This may work once, but it does not make any sense. You cannot eliminate debt by increasing it!

Furthermore, you’ll be carrying that debt and paying for it at a very high rate of interest. On the other hand, if you make your repayment by the due date, or make big routine payments to pay it off, you will certainly pay no or extremely little in interest.

credit cards maxed out

Are your credit cards maxed out? Here’s some personalized tips for paying off credit card debt

What can you do trying to be credit card debt-free? My 4 step strategy can help you get there.

1. Credit cards maxed out: Take control

It isn’t simple or comfortable to take a hard look at your finances, but it is essential. Analyze your household expenses, as well as the interest rates linked to every resulting financial obligation. Track your monthly expenses to really understand what your credit card purchases get you on a monthly basis.

This is the first step in understanding your expenditures and cutting down on the ones that are not needed. To recognize where you are going, you need to recognize where you have in fact been.

2. Credit cards maxed out: Minimize interest rates

The normal rate of interest on a bank card is about 19 percent. That’s rather high, so you may wish to think of doing a balance transfer by moving your credit card debt to a card with a minimized or zero-interest offer to assist in paying it off a lot faster.

A word of care: you’ll probably require to pay a transfer fee in doing so. Likewise, you will need to repay the debt in full before that promotion price finishes. Otherwise, the remaining balance on your new balance transfer card will again attract a greater rate of interest, possibly the very same or higher than the card you moved the debt from.

Although I do not hold out a lot of hope, you can ask your credit card firms if they will lower your rate of interest.

3. Credit cards maxed out: Credit counselling as well as debt paydown approaches

If you merely cannot make sufficient earnings to fund your debt repayments, consider a non-profit credit counselling service. At no charge to you, they can get you into a Debt Settlement Plan. Bear in mind that as soon as you are in such a strategy, your charge cards will certainly be cut off.

Do not go to any one of the financial debt settlement services that market often on television or social media. All they do is charge you a fee to take down basic information that a certified non-profit credit counselling agency or a licensed insolvency trustee would certainly do for no cost. After that, they run you through their “program” charging you a lot more fees until you can pay no more. After that, they send you to a qualified bankruptcy trustee.

There are 2 regular financial debt settlement strategies– avalanche method and also snowball method. The avalanche technique of getting out of the credit card financial debt is you initially put all your available cash to pay down your highest interest rate debt. As soon as that’s cleaned up, you start settling the following most costly debt. You keep repeating this up until all your consumer debts are gone.

Sometimes, the snowball technique offers a great deal of extra motivation. With this method, you settle the tiniest financial debt initially, to improve your mood. You use that power to resolve what is the next tiniest debt and so on. You are grabbing steam like a snowball rolling downhill.

It does not matter which strategy you utilize. The vital thing is that you start now and stick with it.

4. Credit cards maxed out: Adhere to it.

Remember your single focus should be reducing debt, not new non-essential spending. So do not prepare any kind of sort of travel getaways or big purchases in the meantime. You could backslide or strike some road bumps yet do not let that distract you or depress you.

Now for the challenging part. When possible, save some money to assist with unpredicted expenses that you would typically place on your credit card. This will certainly minimize the amount you would have to borrow by paying with real cash.

It’s an incredibly lengthy as well as agonizing trip to fully pay off your credit cards maxed out. It also can be an extremely lonely one. People don’t get into the bank card debt trap overnight, so you can’t leave it without some effort.

Credit cards maxed out summary

I hope that you found this credit cards maxed out Brandon Blog interesting. I wrote this now because I fear the trend I see from both the Ipsos survey and the Statscan report shows that now that Canadians have done their debt consolidation and credit card balances are low, the credit cards are now being run up again. The end result will be higher debt than the average Canadian started with.

Problems will arise when you are cash-starved and in debt, especially with a maxed-out credit card. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

Call us now for a no-cost bankruptcy consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Brandon Blog Post

CANADIAN CONSUMER DEBT: NEW REPORT SHOWS COVID-19 INSPIRES INCREASE IN CANADIAN MORTGAGE DEBT

Post author By Brandon Smith
Post date December 2, 2020

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Canadian consumer debt introduction

On November 30, 2020, Equifax Canada reported that total Canadian consumer debt climbed 3.8% to $2.041 trillion in the third quarter of 2020 compared to the third quarter in 2019. Canadian household average debt is extremely high.

The purpose of this Brandon’s Blog is to discuss what Canadian consumer debt is, what Canadian households have been doing with credit use during the pandemic and what the Equifax Canada reporting means for household debt.

The pandemic can’t stop Canadian consumer debt increase

The reporting indicates that the rise in Canadian consumer debt came mainly from debt growth in mortgage debt and auto loans. Mortgage balance increases came from both refinancings of existing mortgage debt and new mortgage applications.

The thinking with auto loans is that it resulted from Canadians purchasing vehicles that they had intended to purchase earlier in the year. Concerning mortgages, the refinancings were to consolidate higher interest rate non-mortgage debt, for credit products such as credit cards, into a new higher mortgage amount at much lower interest rates.

This obviously brings down the overall average debt interest rate. The new mortgages are tied directly into Canada’s housing market that the pandemic, so far, could not stop either.

All this has taken place with the backdrop of businesses closing and jobs being lost because of the pandemic. As well, millions of Canadians took advantage of payment deferrals on loan payments, especially mortgage deferrals on home mortgages. Finally, Equifax points out that the largest growth in mortgages came from those 35 years of age and under.

So you although you would think that the pandemic, business closures and job losses would result in an overall Canadian consumer debt increase due to hardship, that is not the case. The rise in Canadian consumer debt has been very focussed and is more about an opportunity for those that have maintained a good income.

While mortgage and auto loans increased, other non-mortgage debt products, such as credit cards and unsecured lines of credit, showed net decreases in outstanding balances. The reason for this is that with Canadians working from home and otherwise staying home while receiving government subsidies, they are spending less. On average, on a net basis, that means Canadians used some of their money to pay down non-mortgage Canadian consumer debt.

The debt-to-income ratio and Canadian consumer debt

On June 12, 2020, Statistics Canada reported that the debt-to-income ratio hit an all-time high of 178% in late 2017. The Statistics Canada report in June 2020 said it was at 177%.

The debt-to-income ratio is the degree of just how much financial obligations a household has, compared to its disposable income. That is, the money you have readily available to spend or invest, on an after-tax basis.

A ratio of 177% means that, throughout all Canadian families, we jointly owe $1.77 for every single dollar of disposable income we have. So that means on average, household debt as compared to household disposable income is very close to the all-time high.

What are the consequences of the debt-to-income ratio and Canadian consumer debt?

The general agreement is that too much Canadian consumer debt makes households financially susceptible. If you’re a financial policymaker, such as the Bank of Canada, you worry that too much debt makes the Canadian economic climate much less resistant to future economic shocks. One of the things worrying the Bank of Canada was expressed recently by Deputy governor Toni Gravelle “that fear hasn’t played out during the pandemic, despite it being the worst downturn since the Great Depression.”

At the personal level, we are likely concerned not with macroeconomic principles, but rather, can we afford to make our monthly payments and delinquency rates. Canadians generally, and unfortunately, do not consider what would happen to their ability to pay if something unexpected occurs such as increases in the rate of interest, or the loss of your job.

Using debt is also correlated with optimism regarding our financial futures. Individuals that expect their financial situation to improve are far more likely to be willing to take on more financial debt. Statistics Canada research reveals that individuals’ assumptions concerning their financial circumstances are strongly correlated with both their amount of total Canadian household debt and their debt-to-income ratio.

Even the most optimistic households, however, are still subject to borrowing rules set by financial institutions. The increase in mortgages, be it a refinancing or a new mortgage, is obviously by people who can meet the borrowing rules. Lenders look at the household’s debt service ratio. This calculation suggests to lenders what the household’s capability to make its debt payments according to the repayment schedule is.

So what this tells me is that the housing market, especially the hot expensive cities of Vancouver and Toronto, is being fuelled by those who have good jobs and who can work from home. Probably white-collar jobs and professionals who see the combination of super-low interest rates, their household debt and debt-to-income ratio as an opportunity. They are not as worried about their debt levels or average debt. They are optimistic about taking on more consumer credit.

Are there dangers with the current level of Canadian consumer debt?

Those who have lost their jobs or business are not buying more expensive homes. Those whose hours are constrained by the pandemic also are not the ones buying. So this highlights a divide in the Canadian economy. Those who can afford to view this pandemic as a financial opportunity vs those who are barely hanging on not knowing how they are going to make next month’s rent payment.

The statistics show that 12% of brand-new loans were by Canadians already taking advantage of payment deferral programs. So presumably, those who took advantage of mortgage deferrals in particular also took advantage of credit use for the opportunity I would guess to refinance other household debt.

They rolled higher rate non-mortgage Canadian consumer debt into much lower rate mortgage debt. Another financial opportunity for those with enough income to meet the lender’s borrowing requirements. This produced growth in mortgage debt but a decline in mortgage delinquency rates.

But there is also the other end of the economic scale. Recently, Prosper Canada, a national charity dedicated to expanding economic possibilities for Canadians living in poverty with program and policy innovation, released its report titled “Roadblock to Recovery: Consumer debt of low- and moderate-income Canadians in the time of COVID-19″.

This report shows the effect of household debt on low-income families. The reports main findings are:

Many, but not all, low and moderate household income families carry debt.
Low household income families spend an average of 31% of their incomes repaying debt, while moderate household income families spend an average of 18%.
Fewer low household income families have debt loads backed by assets than their higher-income counterparts. Only 20% of indebted low-income households and 39% of indebted moderate-income households carry mortgage debt.
Fifty-nine percent of indebted low household income families and 56 percent of indebted moderate-income households carry some amount of credit card, unsecured lines of credit and/or installment loan debt, making this the most common type of debt among these households.
Twenty-four percent of indebted low household income families carry student loan debt compared to just 15% to 17% of households at other income levels.
For many households, especially those outside urban centres, automobiles are a necessity of life. However, auto loans pose several risks to low- and moderate household income borrowers with low credit scores.
Financial counselling support for insolvent borrowers is of uneven quality and there are few sources of free, quality financial debt counselling available to Canadians struggling to avoid insolvency. These groups also have no financial plan.

Canadian consumer debt patterns show there are two economic Canadas

The COVID-19 pandemic has actually highlighted in plain terms exactly how unprepared most Canadians are to weather a major economic shock. The above-noted studies show in stark terms that there are at least two economic Canadas.

The first are those who can afford to refinance their mortgage or buy a home to get a new mortgage. The other Canada has lost jobs, businesses and are low to middle income. The low to middle-income groups are in financial trouble and their Canada consumer debt is generally not backed by assets.

However, those who might experience financial problems are not limited to one of the groups. Those who do the refinancings and new mortgages are buoyed by their own optimism for the future. They may tend to just keep taking on more debt. They are not prepared for an unforeseen shock. They will not realize that they are in trouble until they hit the wall.

How do you know if your Canadian consumer debt is a problem?

There are several warning signs that your Canadian consumer debt is a problem. Major indicators are:

Your bank account is overdrawn every month.
You are using credit cards for daily expenses.
You have already taken on payday loans and have started to receive collection telephone calls.
Your debt levels are rising are about to hit the maximum of all of your credit lines.
You are behind on your loan payments.

If you see your debt levels will soon be out of control, the time to act is now. Contact me and I will review your situation and provide you with a financial counselling session at no cost to you.

Canadian consumer debt summary

I hope you have enjoyed this Canadian consumer debt Brandon’s Blog.

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