Do you think you’re the only one on your block who has debt? Think again! Your neighbours are likely just as much in the red as you are. The latest Canadian Financial Capability Survey shows that nearly three-quarters of Canadians (73.2%) have debt.
Everyone needs a little help now and again — from getting an education to covering an unexpected plumbing emergency. It’s how you borrow and when that’s important. While certain loans can give you a leg up in life, others can tie you down.
Let’s look at the common reasons why someone might be in debt, and whether it’s a good idea.
1. Overspending
One of the most common reasons for being in debt is overspending and poor financial management. You might not follow a budget and lose track of your spending, blowing through the money you need to pay bills.
Alternatively, you might willingly open loans and lines of credit to afford fun vacations and shopping without knowing why this is a bad idea.
Generally speaking, financial advisors recommend you save up for these non-essential purchases and reserve credit for emergencies.
2. Unexpected Emergencies
You can’t predict every single expense in your future. Sometimes, a repair or must-have expense totally surprises you and your budget. In these situations, having a line of credit can give you peace of mind. This account provides additional funds you can tap into to help cover these expenses.
While a line of credit isn’t a one-size-fits-all solution for every emergency, it could provide some assistance for yours. Before you apply, you should compare the rates for a line of credit in Canada to understand what this assistance will cost.
3. Lifestyle Inflation
Some people find themselves in debt due to lifestyle inflation and the desire to keep up with others. When individuals feel pressured to maintain a certain standard of living or compete with their peers, they may resort to credit to finance expenses beyond their means.
4. Student Loans
Pursuing higher education often involves taking out student loans, which can lead to significant debt burdens for individuals. The costs associated with tuition, books, accommodation, and other educational expenses can accumulate over time, leaving graduates with substantial loan repayments.
The U.S. is infamous for it’s astronomical student debt — today, it’s worth 1.73 trillion USD — but anyone can owe a lot, regardless of where they live.
5. Mortgage
Getting your foot on the property ladder is next to impossible without a mortgage. Mortgages are considered good debt because, as you pay your mortgage, you collect equity. Eventually, you’ll own your home, the value of which will only grow over time.
The Takeaway:
Being in debt isn’t always a bad thing if it helps you take care of something important and you have plans to pay it off. However, you should be mindful of any loan and only apply for one when there is no other option.
Developing good financial habits, such as budgeting, saving, and managing credit responsibly, can help prevent and overcome debt situations. If you feel like you’re stuck in a hole, reach out to a non-profit credit counselling group for help climbing out of debt.
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