It seems that everyone these days is peddling debt. And Canadians are responding, with debt levels reaching record levels.
Politicians are worried. But the problem is: with a weak economy the traditional policy governments use to discourage borrowing (raising interest rates) is not really an option. The economy is too fragile.
So we keep borrowing — mortgage debt, home equity lines of credit, credit card debt, investment loans … you name it. And, in a couple of months we’ll be into RRSP season and mark my words: they’ll be at it again — with RRSP loans. Don’t get me wrong, our financial institutions without a doubt have been more responsible than their U.S. counterparts.
For the most part they have refrained from lending to those who clearly cannot afford it. Instead, our financial institutions focus on those who can afford it, and try to get them to borrow as much as possible.
Think about it. When you apply for a mortgage, how often have you been told “this is how much you should borrow” as opposed to “this is how much you can borrow.”
Consider this example: two borrowers with identical incomes buying similar houses, only Borrower A is a long-term member of a generous pension plan, while Borrower B is not, and needs to make sizeable RRSP contributions to have any hope of a comfortable retirement. Yet most, if not all, Canadian financial institutions will be more than willing to give Borrower B every bit as big a mortgage as Borrower A.
Have you opened your credit card statement this month — as we head closer to Christmas shopping season? If so you may have noticed some cheques – cheques offering credit at low interest rates.
There is of course a catch. If not paid off by a specified date this debt will roll into credit card debt — at a much higher rate. I know it’s tempting, but you’ll probably be better off not using these.
Instead, consider engaging the services of a financial advisor who will show you strategies designed to get rid of debt, and systematically build wealth. You may be surprised at what can be accomplished.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund (CIPF). Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member CIPF. For more information feel free to call Jim at (250) 594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.
