Canada may have a stable economy, but that doesn’t mean Canadians are financially sound. And while the real estate market might be on fire, Canadalend.com observes that that doesn’t mean most Canadians are feeling richer.
In fact, Canadians are facing near-record debt loads. If Canada’s interest rates start to rise next year, climbing to more normal levels, consumers could start to find their debt loads unmanageable. This is especially concerning when you consider a whopping 42% of Canadians say they would be in financial trouble if their pay was delayed by just one week.
For example, the average ratio of debt-to-disposable income is dangerously high. The debt-to-income ratio is a common metric used to gauge how indebted Canadian households are.
At the end of 2011, the average debt-to-disposable income ratio was 150.6%; it climbed to 152% in 2012, and in 2013, it hit a record 164.1%. Today, it’s hovering around 163%. A more stable ratio is between 110% and 120%.
What does that mean? For every $1.00 in income earned, Canadians owe their banks, credit card companies, auto dealers, and other lenders $1.63 in debt. While the debt-to-disposable income ratio is down slightly from last year’s record levels, it remains high. This leaves the average Canadian vulnerable should they get hit with an unexpected expense or job loss.
Whether you’re being weighed down by debt, want it to be more manageable, or need a little breathing room, the experts at Canadalend.com can help you through debt consolidation.
Debt consolidation is about taking out an equity home mortgage loan; doing this allows you to consolidate your debts into one manageable payment. Alternately, you can also refinance a first or second home mortgage into a single monthly payment.
Of the 10% of Canadians who refinanced their mortgages last year, 62% cited debt consolidation or repayment as the main reason.
This is because consolidating high interest debt, like credit card balances and auto loans, into a low-interest mortgage can save you thousands in interest payments. Consolidating your high-interest debt (credit cards car loans) into a low-interest mortgage is an easy way to manage your payments and save money.
How? Let’s say you have $50,000 in debt spread out over three credit cards with an interest rate of 18%. Assuming you pay three percent of the outstanding balance—and don’t get yourself any further into debt—your minimum monthly payment would be $1,500.
It would also take you 352 months, or more than 29 years, to get rid of your debt. During that time, you’ll have paid the credit card companies $49,697.08 in interest.
Consolidate your debt into an equity home mortgage loan and you will not just have one convenient payment to make each month, but you will also pay a lot less in interest. That’s because interest on a secured loan is much, much lower than the interest on a credit card.
If the interest on a five-year fixed rate is 2.75%, your monthly payments plummet to $230.66. Over the 25-year amortization period, you would pay out $69,196.63, of which, $19,196.63 is interest. By simplyconsolidating your debt , you free up more than $1,200 per month, save more than $30,500 in interest, and pay off your debt five years sooner.
If you can afford to pay more each month, you can shorten the amortization period, meaning you’ll save even more in interest charges and have your debt paid off sooner.
If you own a home and want to see if you qualify for a debt consolidation home mortgage, equity loan, or refinancing, contact Canadalend.com or apply online . An independent, licensed Canadalend.com debt consolidation specialist will help set up an appointment for a personal consultation at your earliest convenience.
“42 per cent of Canadians living paycheque to paycheque: survey,” CTV News web site, September 11, 2013; www.ctvnews.ca/business/42-per-cent-of-canadians-living-paycheque-to-paycheque-survey-1.1449473#ixzz3HSpD48xh.
Parkinson, D., “Canadians’ household debt burden edges higher in second quarter,” The Globe and Mail ,September 15, 2014; www.theglobeandmail.com/report-on-business/economy/household-debt-burden-for-canadians-edges-higher-in-second-quarter/article20573363/.