Are You a Credit Sap?
Statistics Canada has gobs of interesting information about how Canadians are doing financially. If you’re from the U.S., we’re doing marginally better in the north, but quickly heading into your kind of trouble.
Did you know that 25 years ago, 39 percent of us were spending MORE than our pre-tax income. Uh-huh. More than our pre-tax income. What were we thinking?
Things are better now though. NOT.
Nineteen years later, 47 percent of us were spending more than our pretax income. Wow! That’s almost half of Canadians spending more than their gross income. How is that even possible?
Credit.
Yup, you can spend more money than you make if you have access to credit. And most of us do.
Well, we’ve had a booming economy for the last six years, so things are probably better now, right?
- In 1999, Canadian families had over $29 billion in line of credit debt. By 2005, that had grown to almost $68 billion.
- In 1999, Canadian families had almost $16 billion in credit card and installment loan debt. By 2005 that had grown by over 58 percent to almost $26 billion.
- In 1999, Canadian families had over $33 billion in vehicle loan debt. By 2005 that had grown by over 41 percent to over $46 billion.
- In 1999, Canadian families had over $17 billion in student loan debt. By 2005 that had grown by almost 16 percent to almost $20 billion.
Source: Stat Canada
Add it up… $68 billion + $26 billion + $46 billion + $33 billion + $17 billion = $190 billion in debt spread over approximately 7.5 million Canadian families. That doesn’t include mortgages! And since there are lots of us that don’t have huge debt loads, think what that means for the poor people who do.
So, are you a credit sap? Are you one of these statistics, spending more money than you make, living beyond your means, buying today’s goods and services with money you may or may not earn tomorrow? And are you happy about the amount of interest you’re paying? Do you even know how much interest you’re paying?
You don’t have to live in debt. You can change your life. But you have to really want to. And you have to accept that you’re going to find it hard to do.
It will be hard. But if you have the gumption, you can do it. I know you can.
The first thing you have to do is take all your credit cards but one and cut them up. Include your department store cards. And unless you’re getting a discount on gas, include your all your gas cards too.
Next, take the credit card you’ve kept and put it somewhere hard to reach - freeze it, bury it in the backyard, throw it behind the refrigerator.
Now you’re on your way.
What’s next? You’ll have to make a budget, create a debt repayment plan, and rebuild your credit history (if you’ve made it messy). And you should negotiate with your creditors to either consolidate your debt at a lower cost, or reduce the amount of interest you’re paying on your various forms of credit.
Most important, you have to stop shopping. Make a promise to yourself that you won’t buy another unessential thing (so nothing beyond what it takes to keep body and soul together) until you’re out of debt.
All the tools you need to achieve a debt-free life are here on this website. If there’s something you can’t find, let me know (through Questions) and I’ll try to help.
So, are you ready to be debt free? Is 2008 the year you’re going to do it? Great! Make me proud.
BTW: I know I still owe you an answer from yesterday’s blog, but you’ll have to be patient. I’m giving all the people who are figuring out what they’re spending some time to do their numbers. Stay tuned.
February 26th, 2008 at 7:18 pm
GASP! CHOKE! WHEEEEZE!
Those figures are really alarming!
I look at our friends and neighbours and their new cars, the new appliances, the new furniture and/or the fancy clothes, games, electronics and I keep thinking…. “What are they doing that we aren’t doing?” “How can they have all these nice things when we keep having to repair, mend and make due with what we have?”
I think you just spelled out they answer. THEY will go into hock for these things, and I can’t afford to pay interest!
LOL — I really can’t afford to pay interest on all the depreciating knick knacks, but at least I KNOW that about myself.
February 26th, 2008 at 8:17 pm
Hi Gail,
Australia’s not in any better shape. The Australian Burueau of Stats keep similar figures, and a quick look at a quarterly report from last year (2007) shows that $26.0 billion dollars was borrowed by households in the March quarter, $13.9 B was from banks and $5.2 billion from financial intermediaries n.e.c. was $5.2b. Of the bank loans, $5.2b was borrowed for owner occupied housing and $3.0b for investment housing. Which leaves a country with a population of 20 million borrowing $17.8 billion in 3 months for reasons OTHER than housing or business. these are HOUSEHOLD borrowings.
And needless to say, as a nation we are spending more than we earn.
February 27th, 2008 at 12:03 pm
Speaking of ‘freezing credit cards’, I took your advice to heart Gail. The first time I froze the card, it landed on the bottom of the container. As often happens, I had this impulsive thought that I absolutely needed something (don’t know what I needed so badly), I reached in the freezer, took out the container and discovered the card had settled on the bottom of the container and with just a little hot water, the card came free. Later though, I got wise - I wrapped the card in a plastic bag, stuffed it in the container, put water in and froze it and that solution plus waiting a day to rethink whether or not I really, absolutely needed to use the card foiled my impulse to unfreeze it! That wait time really worked for me!
February 27th, 2008 at 12:50 pm
Another tip to avoid using your credit card…..put in underneath your cat’s litter box liner….no one will sift through kitty litter to buy something…and another thing to dissuade you from using it..it will smell like cat pee. Like Pavlov’s dog..you will associate a foul smell with using the card!
February 27th, 2008 at 4:15 pm
Hi Gail
I’m trying to get our spending under control and have created a budget (which I still need to tweak because I’m coming up short). One thing that my husband and I argue about is savings. Should you budget for savings while repaying debt? Brian argues that the money that is going to savings should be used to pay the interest on the debt. He doesn’t think it makes sense to put money away while we’re losing money in interest. I think we should have some savings so that we get into the habit of putting money aside. What’s your opinion?
Thanks!
February 27th, 2008 at 5:24 pm
You should absotively posolutely be saving for two reasons:
1. You nailed the first one when you said it was to “get in the habit.” Yup. Otherwise, isn’t there always a good reason not to start.
2. If you don’t set aside something for the longer term, as well as for emergencies, then every time something pops up, it’ll push you back to your credit.
So, you have to be paying down your debt AGGRESSIVELY, and you have to be setting money aside in savings to put inertia on your side… a body in motion, and all that.
Tell Brian I send him a hug, sorry he’s wrong, but not to take it personally because tons of people think the way he does.
February 27th, 2008 at 5:30 pm
Gail,
I’m a very big fan of your show and the site but I’m having alot of trouble following your numbers.
Two discrepancies jump out at me. First of all you mention vehicle loan debt twice with different numbers (not sure why). Second (and more significantly) you quote these figures in millions of dollars. Did you maybe mean billions?
After all $160 million dollars spread across 7.5 million families works out to a mere $21.33 per family- hardly a deal breaker. However, if you intended these figures as billions then it’s an average of $21,333.33! Now that hurts.
Keep doing what you do, we all really appreciate it!
Jet
February 27th, 2008 at 8:09 pm
Hey Jet Captain. Thank gawd there are some awake people out there. Only heaven knows where my head/fingers were at when I put in those number. Lord love a duck! Okay, I’ve fixed them, and they’re even worse than I reported. You’re right, of course, the millions should have been billions. As for the second “vehicle” loan amount, it should have been “student” loan. I’ve also included a link to the Stat Can site where I pulled the new numbers. I apologize for the screw-up. Thanks for keeping a keen eye on what I’m writing. I really do appreciate it. cheers, g
February 27th, 2008 at 9:14 pm
To Alison:
Why save while paying down debt?
If something really bad happens, you have to pay that minimum on your credit cards somehow! That is why you need direct access to 3-6 months’ worth of ‘mandatory expenses’. Unfortunately, bad stuff does not stop happening just because you learned to live on a balanced budget.
So until that buffer money is available, the emergency account is REALLY worth it. If a job is lost during repayment, you can handle it better! This is like a ’self-insurance’ program, fully refundable…
March 2nd, 2008 at 11:13 am
Another comment re why to save while repaying debt -
It depends on your individual situation as to whether it is better to repay debt or save (and benefit from compounding interest, which can really add-up over time). It would be best to talk to a financial advisor about your particular situation to see what the benefit of paying the debt would be versus putting the money into savings. They can give you an idea as to what the return on your savings MIGHT be (unless you are in an investment that guarantees a particular return, like a GIC that pays 4% interest after 1 year, then your return is NOT guaranteed), versus your “return” on paying down the debt (ie. saving X amount of interest is like getting x% return on that money…)
We talked to a chartered accountant about whether we should invest some extra money we had in savings or pay down our mortgage. He used a formula to show us (based on our income level = tax bracket) that if we paid down the mortgage, it would be like getting 8% return on our savings. We decided that we would pay down the mortgage debt b/c we could not guarantee an 8% return on your savings, especially b/c the market is looking a little volatile right now…
Hope that helps
Jenn
March 7th, 2008 at 9:41 pm
There was a commercial on TV for the ‘new’ Monopoly game. This is the one where kids do not need to learn how to count money because they just swipe a card. Did I see a VISA card in that game? Talk about a starting early with kids! I thought this was a good game before, but this just NOT good!
I hope that someone can correct me! Really, please, go ahead! This was just a glance and I hope to be wrong!
March 8th, 2008 at 11:50 am
Your eyes were not deceiving you… I guess adding and subtracting was just too big of a hassle O_O
March 8th, 2008 at 8:55 pm
Yup, the commercial just played during Gail’s show and there was the Visa. Double darn!
March 8th, 2008 at 10:14 pm
Marie,
Isn’t that stomach churning! To see credit cards essentially marketed to 5 year olds!
I always thought the great thing about so many board games was that they reinforced basic math skills, but that is clearly no longer true.