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This article outlines the debt traps faced by Canadians.  This reputable firm discusses how nearly half of Canadians are in financial trouble.  It says 47% of all Canadians said that they will have less than $200 remaining at the end of the month after covering all expenses.  This is very scary given that interest rates are very low.  Without any savings, how are Canadians going to be able to afford their current lifestyles if interest rates increase or as we go through covid and so many of us are loosing our jobs.

I chose this article as my brother is facing this situation. He and his partner live paycheque to paycheque as their employment is hourly. If they do not work, they do not get paid. However, his partner is a gymnastics coach and has lost his job due to covid. If the government support is stopped, he has limited options to replace his income. This will be a difficult financial time for them.

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Nearly half of Canadians are facing a debt trap, according to a new survey that thrusts highly-leveraged households into the spotlight ahead of an upcoming interest rate decision by the Bank of Canada.

Forty-seven per cent of respondents to a survey conducted on behalf of insolvency firm MNP said they don't expect to be able to cover basic living expenses over the next year without taking on more debt.

A slightly greater proportion (48 per cent) of respondents said they have less than $200 remaining at the end of the month after covering living expenses and debt payments; that was up four percentage points compared to the previous survey in June.

On average, respondents to the survey said they had $557 left after paying their monthly bills and obligations, marking a decrease of $142 from June.

"Household debt has eased marginally and the current holding pattern on interest rates may be giving Canadians a sense of optimism about their finances," said Grant Bazian, president of MNP LTD, in a release Monday. "Still, the fact remains that many are drowning in debt and most don't have a clear path to repayment."

Average Finances Left at Month-End
The lack of financial buffer is leaving certain Canadians particularly vulnerable to the unexpected. Indeed, the survey showed seven out of every 10 respondents were not confident about being able to handle an abrupt setback like divorce, unemployment, or death in the family.

"Unexpected expenses can plague people regardless of age or income but they're most devastating for people who already have a large amount of debt," Bazian said. "Our research shows that most households do not have enough cash for inevitable life events like a car repair."

The new anecdotal evidence of tight household finances comes ahead of a policy announcement by the Bank of Canada on Wednesday that will break a prolonged period of silence on monetary policy.

In the most recent official speech by a member of the Bank's governing council on Sept. 5, Deputy Governor Lawrence Schembri said elevated household debt levels "remain the main risk to Canadian financial stability." He also pointed out, however, that current tighter mortgage rules are helping to improve the quality of that debt.

The MNP survey of 2,002 Canadians was compiled by Ipsos from Sept. 4 to Sept. 9. MNP said the results are accurate within 2.5 percentage points, 19 times out of 20.

Results

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Canadians 'drowning in debt' as 47% struggle to cover costs: MNP - BNN Bloomberg

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Nearly half of Canadians are facing a debt trap, according to a new survey that thrusts highly-leveraged households into the spotlight ahead of an upcoming interest rate decision by the Bank of Canada.

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This website is sponsored by a debt solution company.  Although it makes me cautious as I read their suggestions, they provide good solutions.  The debt traps are as follows:  credit cards with the high fees, late payment fees and cash advance fees; overdraft protection and the high costs for having the service; mortgage refinancing as a ATM machine never allowing the customer to become mortgage free; Payday loans which are expensive credit cards; and car title loans which are secured by your car and provide cash at very high interest rates.

I choose this website as it provided a comprehensive list of all the debt traps out there. It is a minefield for those who are not able to manage their credit well. It clearly becomes a situation where the customer needs to be well educated and read all of the fine print on financial agreements. It is hard to trust financial institutions after doing all of this research.

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There are lots of products and services on the market that may promise temporary relief from your debt-and some of them can. But most of them are just debt traps that can make your financial woes even worse. Here are the 10 Debt Traps and tips on how to avoid them.

Debt Trap #1: Credit Cards

Credit cards are a double-edged sword. In other words, they can be very helpful when you need cash, but if you don't manage your accounts wisely, credit cards can make your financial situation a lot worse. Here's how:

Fees can be exorbitant:

Late payment fees-If your payment is even one day late, you may be subject to a late fee of $39 or more.

Over-the-limit fees-If you go over your credit limit by even one dollar, you may be subject to a fee of $35 or more.

Cash advance fees-Most companies charge from 2%-4% of the amount advanced, with no maximum amount.

Balance transfer fees-Some creditors charge as much as 5% when you transfer the balance from another card. That's a $150 fee on a $3,000 transfer. So if your intention is to lower your interest rate, you may not achieve your goal when you consider the fee involved.

Annual fees: Some cards have annual fees as much as $400. That's a lot to pay for the convenience of using a credit card, especially when there are plentiful no annual fee cards available.

Sudden changes to your credit agreement can be very costly:

Rate increases for late payments-On some accounts, a late payment of even one day triggers an increase in the interest rate of the account. Some accounts that begin at 9% can instantly rise to as much as 29.99%!

Default rate increases-Some creditors will raise your rate if you have been delinquent on any other credit accounts! They regularly monitor your credit report, and if you've been late on any accounts, they'll penalize you.

"Rewards" programs. Any reward program that you have to pay for isn't really a reward program. If it's free-take it! If not-stay away!

Credit card registration services. These services compile all of your credit and debit card account information and arrange for the cancellation and replacement of any lost or stolen cards. Yes, it's convenient. But it comes with a price tag of anywhere from $49 to $99 a year, and you can do what they do all by yourself in about 20 minutes-for free!

TIPS: Read all credit card agreements thoroughly; and make all payments on time, or even a few days early. Useful resources are the Pay Off Credit Card, Credit Card Optimizer and Personal Finance calculators. If you find you are just treading water on your credit cards, try credit consolidation.

Debt Trap #2: Overdraft Protection/Bounce Protection

Overdraft protection and "bounce protection" provides for the payment of your checks-up to a specific amount-if you don't have enough funds in the bank at the time. You can also tap into it using an ATM if you're strapped for cash. But it's far from free:

The overdraft fee for a bounced check or over-limit withdrawal can be over $35 per incident, regardless of the amount.

Most programs demand that all fees, and the overdraft amount, be repaid within 30 days. But some demand repayment in 16 or even five days; and if you don't pay on time, they can send the account into collection!

Some banks even charge a daily fee of as much as $ 10 until you have repaid the overdraft amount.

TIP: If you'd like to sign up for an overdraft protection program, make sure you are aware of the terms you are agreeing to. Know what your fees are, when they are triggered, and whether or not your overdraft protection amount is included in your daily balance. Understand that "Overdraft Protection" is an optional feature of a bank account and that you can opt out of it.

Debt Trap #3: Mortgage Refinancing

When rates are low, it's tempting to refinance your home. After all, your monthly payments will go down, and you'll get some extra cash, right?

Not necessarily.

Only people with the best credit qualify for the lowest rates.

Even if you qualify for a low rate, there are still costs and other considerations, such as: Do you want to sign up for another 30 years of mortgage payments?

Also, ask for a detailed breakdown of origination fees and other closing costs associated with a re-finance. These costs can run between $1500-$5000, on average, for a single family home, adding to what you owe.

Finally, stop thinking of your house as an ATM machine. The purpose of a 30-year mortgage is to have it paid off when you retire, to reduce your expenses when your income decreases. Borrowing from your home will keep you house poor.

Debt Trap #4: Payday Loans

These loans are basically very expensive credit. You write a personal check to a lender for, say, $120, in order to borrow $100 for two weeks. The lender holds your check until your next payday, at which point the lender deposits your check, or you pay another fee to extend the loan another two weeks. So if you roll the loan over three times, that's 3 x $20, and you've paid $60 to borrow $100! That's an annual percentage rate of 521%!

Payday Loans are likely the worst debt trap of them all. Most of them roll into a second loan, and then a third. It's better to pay late or default on other, lower-interest debt than to take out a payday loan.

Debt Trap #5: Car Title Loans

These loans are secured by the title for your car, and the lender decides how much it will loan you for your car, as well as the time period of the loan. Not only can the annual interest on these loans be as much as 264%, but you may also lose your car if you're even one day late on your payment!

TIP: If you must resort to a car title loan, make sure you read your agreement thoroughly and you are certain that you will be able to pay on time.

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Debt Traps: How to Avoid Debt by Being Careful

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There are lots of products and services on the market that may promise temporary relief from your debt-and some of them can. But most of them are just debt traps that can make your financial woes even worse. Here are the 10 Debt Traps and tips on how to avoid them.

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This video from the New York times  is the story of Amy and Robert Ahleman who lost their home as they were not able to pay their mortgage.  These real life stories are ones that the viewer can relate to and really emphasize the risk of high leverage home ownership.  It tells the story of how that they were highly leveraged from the time that they bought their dream house.  Without proper financial advice, they were not able to save any money and when they hit a rough patch, they could no longer afford their home.  It appears that the banks were ready to give them money even when it was a stretch.  However, there was no support when their situation changed.

I choose this video as the real life stories of people who live through financial crisis is very impactful. It is very scary how easy it is for someone's life to be turned upside down so quickly. It is almost as if once things start to go downhill, there is no one to support you. The banks clearly demonstrate how it is a business to them.

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This YouTube video clearly shows the payday debt process.  It is very expensive and addictive for the customer to receive this money.  The Payday company charges such high rates that the customer can not stop their reliance on the company.  The graphics make it easy to understand.

I chose this video as a way that I would be able to explain the risk of payday loans to family and friends. It is a short effective video on the payday loan cycle.

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The most important thing to pass on is to learn to manage your money. You can not live on credit cards and need to find a way to live within your means. My new strategy is to put aside money from each pay to make sure that I have money in case of an emergency. Preparing a budget will help ensure that you know what your income and expenses are. This is the only way to meet your goals.

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I am interested in this topic as I found myself with credit card debt that I could not repay. The bank pushed me to take the card when I was there. I was a student with a part-time job but the bank gave me $1000 to spend. It was so easy and you don't realize how much you are spending until the statement arrives. Worse, they let me go over so they could charge me fees of $27.00. It was so hard to get out of the debt as I still needed to live plus I had to pay off this card. I cut it up and started putting any amount on it including my Christmas gifts where I asked for money. It was a really hard time. I do not want to get another card but it is almost necessary if want to build my credit.

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This image portrays the Payday loan cycle which is impossible for so many people to break. The cost of borrowing makes it impossible for the people that need the money to get ahead.  It only makes sense if you know that you can repay the loan at the end of the two weeks.  The customer becomes dependent on the payday loan as they have used up their paycheque in advance of earning it.  It is a slippery slope that will get worse if something happens such as a job loss or an emergency.

I choose this image as it provides a good overview of the payday cycle.  It clearly provides a quick view of the cost and how it will become an issue for many if they use these services.

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I learned a couple of things from this project on how much debt people are in and how banks take advantage of you. I was surprised how the workers in the Marketplace Video were able to tell all of these lies to innocent people who cannot afford to pay these costs. It was disturbing of how people are being taken advantage.

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This image is used to represent the weight that so many are feeling by trying to carry too much debt. The cost of managing their finances is creating other problems such as marriage break-downs, health issues and financial losses such as losing their house.   It is like falling into a sinkhole of debt.

I choose this picture to represent the challenge of having debt. It weighs you down and is hard to get rid of it. It can make you fall even further.

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This video is a story about the financial difficulties of an American woman who lost control of her financial situation.  She was managing until her marriage fell apart and then she started into a spiral of credit card spending.  This resulted in her loosing her house and now having to declare bankruptcy.  Of concern was that with no hope of being able to repay the debt that she had, credit card companies were still offering her credit.  It is very difficult to watch as her whole life centred around trying to manage her money.

I chose this video as it really resonated with me.  I went through a period of time that I was using credit to support my living expenses.  I could also relate to buying things in order to try and make myself feel better.  I am now that person selling these things and living at home again in order to pay off my debts.  I am trying to save money so that I can learn to move out without causing financial issues.

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This video is about Easy Financial, a lending institution that provides personal loans.  Marketplace went undercover to see how difficult it was to obtain a loan and what the actual cost was of borrowing.  This payday loan business is in the business of making lots of money through high interest rates and fees to those who can least afford it.  The workers were not able to answer all of the questions about the risks of borrowing for the customer. It is easy to see that many of their customers will have difficulty paying back these loans.

I chose this video because it was Canadian investigation on how this type of payday lending hurts people.  It is surprising to me that there are no regulations on making sure that customers know what their actual costs. There is no plan of how they will be able to afford to pay it back.

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Are Easy Financial's installment loans a good deal? (CBC Marketplace)

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This article discusses how Canadians have been living off the equity in their homes. As property values have continued to rise, homeowners are able to borrow against their homes and do renovations, take trips, buy things and consolidate debt.  The issue is that the level of debt keeps rising. For many Canadians, the problem with debt started with buying a home that they could not afford. Many feel that buying a home is the right thing to do and by putting down the smallest amount, they were able to buy a house. The problem is that they did not account for all of the costs of homeownership. These homeowners are living pay cheque to pay cheque and relying on interest rates staying low and maintaining their jobs. It is very risky as many are finding out now during this time of crisis.

I chose this article as I had never thought about buying a house as being a problem to manage debt.  I realize now that if you cannot afford a house or it would be tight, that it may be better to wait or maybe being a homeowner is not the only way to build financial security.  It was very sad to read of the story of Ann who now at retirement age has no retirement savings.

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In 1998, Ann bought a one-bedroom condo in the Kitsilano area of Vancouver. Gainfully employed at a printing company, she found the monthly mortgage payments were within her budget (Ann and others quoted in this story asked that Maclean's not use their full names). The building was on the older side, and eventually she got the itch to update the decor. She intended to replace only her bathroom sink; she ended up renovating the entire bathroom. "I remember thinking, 'Well, now that I've started...' " The kitchen came next, then the living room and finally the bedroom. Ann thought the renos, funded partly on credit and spaced out over a few months, would boost her condo's value. She also wanted to keep up with her neighbours. "Everyone was doing something," she says.

Finances became tight afterwards, and she only paid the minimum on her credit card each month. Every year, her condo fees rose while her salary at the printing company (where she still works) stagnated. She began relying on credit for everyday expenses, and later took out a second card.

Soon, one of her banks began calling with a solution to help manage her debt. She ignored the inquiries, preferring not to think about her finances, but she started to feel desperate: "I just wanted to do something, and that was the only thing coming my way." The bank offered a loan at a low rate to pay off her high-interest credit card debt, and she ended up taking out a second mortgage for $80,000. The interest rate still wasn't manageable. "It was a huge mistake," she says.

READ MORE: After weathering the Great Recession, can Canada avoid a debt crisis?

Saddled with two mortgages, rising condo fees and a flat income, she continued relying on credit cards. Surprise expenses, such as dental work, added to her debt. Embarrassment kept her from seeking help. Three years ago, she decided to sell her condo. Despite Vancouver's booming market, the sale didn't solve Ann's financial problems. She moved in with a friend and was able to pay off her mortgages, but she couldn't make much of a dent in her credit card debt.

In 2017 year, Ann turned 64. She was carrying $70,000 in debt, and knew she couldn't work another decade to pay it down. That realization prompted her to seek help, and she eventually met with an insolvency trustee. Ann's trustee filed a consumer proposal on her behalf. Less severe than personal bankruptcy, a proposal is an offer to all of an individual's creditors to pay a portion of debt under a strict plan over a maximum of five years. The remainder is discharged. Creditors typically agree to these arrangements since they are guaranteed to recoup at least some of their money. For Ann, filing a proposal came as a relief. "I actually feel like I can breathe again," she says.

Other Canadians are still suffocating. In early 2017, the household debt-to-income ratio hit another record of 167.8 per cent. A long period of abnormally low interest rates has enabled Canadians to carry massive debts, since monthly payments appear manageable. Further, in cities with rising home values, particularly Toronto and Vancouver, homeowners can secure a home equity line of credit (HELOC) to pay other debts or simply fund their lifestyles. In spring of 2016, the Financial Consumer Agency of Canada warned that the increased use of HELOCs "may lead Canadians to use their homes as ATMs, making it easier for them to borrow more than they can afford."

Insolvencies, though, are rare. As of the end of July [2017], there were nearly 123,000 consumer proposals and personal bankruptcies filed by Canadians in 2017, a decline of 1.2 per cent from the same period in 2016. That might be a sign of fiscal prudence, but it's also the result of record low interest rates that ease debt-carrying costs. Scott Terrio, an insolvency estate administrator and president of Debt Savvy in Toronto, calls this phenomenon "extend and pretend." Canadians can extend their debt repayment terms and pretend to live a lifestyle they can't otherwise obtain. He sees it all the time-couples with decent jobs carrying large mortgages, and putting daycare, cars and vacations on credit.

RELATED: Canadians pile up debt faster than anyone in the world

Some reach a trigger moment when they can no longer pretend-a job loss, say, or divorce or illness. But lately Terrio has noticed a change in his business. More clients are coming in because they're simply tapped out. As with Ann in Vancouver, there is no trigger. "It's a gradual realization for some people," Terrio says. "They can't do it anymore." Lana Gilbertson, an insolvency trustee in Vancouver, has seen the same change. "Nowadays, they have jobs, they're making money, they're plugging along, but they're just in over their heads," she says.

The cost of borrowing is set to rise, adding strain to households. The Bank of Canada hiked rates twice in 2017, signalling more could be coming-depending, in part, on whether households can handle it. Economists at TD Bank Group believe two more rate hikes are likely next year. That will cause rates on everything from lines of credit to car loans to mortgages to tick up. At the same time, house prices are not rising as quickly as they once were in many Canadian cities. RBC Economics forecasts home prices in Canada will increase 11.1 per cent in 2017-and just 2.2 per cent in 2018. Canadians won't be able to pull cash out of their homes so easily to get themselves out of trouble. "The insolvency business is cyclical, and we're at least a year overdue for shedding blood in the system," Terrio says. "If ever we were poised to hit that right on the head, it's now."

For some Canadians who struggle with debt, the problem can be traced back to real estate. In a survey TD released in September 2017, 56 per cent of respondents from across Canada were willing to exceed their budget by up to $50,000 to purchase a home. At the same time, 97 per cent of homeowners said they wished they'd factored in other obligations before buying, such as property taxes, maintenance costs and "overall lifestyle expenses."

The problem is not confined to Toronto or Vancouver, where huge price gains have enticed buyers to stretch themselves for fear of getting permanently priced out. In Regina, Joshua and his wife purchased a house in 2014 when expecting their first child. Both 24 years old at the time, they carried about $35,000 in debt between them, mostly tied to student loans. "We rushed into getting a house because we just thought it would be the right thing to do," Joshua says. "It almost felt wrong to be renting and having a kid." (Joshua's mom pressured them to buy, too.) In one weekend, they viewed 16 houses. The very last one felt right. They put down five per cent and moved in.

But the couple was blindsided by maintenance costs. Their furnace needed repairs, and they later had to replace the water heater, which set them back hundreds of dollars. After expenses, the pair has virtually no cash to put toward their debt. Joshua's card is maxed out, and his wife's card is close to the limit. Joshua says they're frugal (splurging means going to Subway) and live paycheque to paycheque. The situation became worse this year. His wife is on maternity leave with their second child and their variable mortgage rate ticked up. "Just the way the rate is fluctuating is killing us," Joshua says, who works in sales at a telecommunications firm. "It can't keep changing like this."

Staring down tens of thousands of dollars in debt, rising mortgage costs and no foreseeable way to substantially boost their incomes, the couple decided to sell their house and rent. They're not expecting a windfall. A while back, their basement flooded and they used the insurance money to repair the foundation. The basement had been finished, but there's no cash to renovate it, so it will be sold in "as is" condition. The market in Regina is also soft, and the average home price is down slightly from 2014. Joshua hopes to at least get his down payment back, and their financial situation should improve when his wife returns to work as a massage therapist. "We'll be able to really hack away at our debt," he says, "but it's going to take years."

While real estate has led to financial distress for some Canadians, it's been a saviour for others. The home equity line of credit has allowed millions of households to borrow against their properties, providing cash for everything from renovations to investing to debt consolidation. HELOCs have been around in Canada since the 1970s, but in the mid-1990s, lenders started marketing them to a wider swath of consumers. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20 per cent.

The pace of growth has slowed since then, but balances still hit $211 billion in 2016. Lenders have been all too eager to dole out HELOCs, creating the perception of instant, easy money. An animated commercial for Alpine Credits, a lender in B.C., features a room full of employees rubber-stamping loans-even for a client who wants to install a four-storey waterslide. (The employees celebrate by cheering while one pops open champagne and another tears off his shirt.)

RELATED: Praying for a real estate crash

One common use of HELOCs is to pay off higher-interest debt. In 2016, according to Scotiabank, Canadians used $11.6 billion (or 28 per cent of HELOC withdrawals) for debt consolidation. Doug Hoyes, a founder of licensed insolvency trustee Hoyes, Michalos & Associates, has witnessed the shift. The firm has offices across Ontario and in 2011, roughly one-third of the firm's clients owned a home when they filed for bankruptcy or a consumer proposal. Last August, just six per cent of insolvent consumers were homeowners. "You don't need to file a proposal to pay off your debt," he says. "You just go out and get a second mortgage."

If the pace of home price appreciation slows down-or worse, prices drop-there will be consequences for households that have been piling on debt. The slowdown in the southwestern Ontario real estate market is already creating stress. Hoyes recently saw a couple who purchased a home four years ago and accumulated $70,000 in unsecured debt. They bought furniture, hired landscapers and borrowed to finance a swimming pool. Before the slowdown, the couple might have earned $100,000 by selling their home. Now they might get $70,000, which would barely cover their debts. They're also reluctant to sell and move to a different neighbourhood. And because of the softening in the market, they haven't been able to find a lender willing to issue them a HELOC large enough to cover their unsecured debt. Their solution? Convince one set of parents to take out a second mortgage, and borrow from them. "It's the bank of mom and dad," Hoyes says.

And while debt consolidation is an effective strategy if consumers don't fall back on bad habits, Terrio says recidivism is a problem. "They go ka-ching out of their house and pay off their credit card debts, but they go and run up their cards again," he says.

Borrowing against her home wasn't enough for Charis Sweet-Speiss to pull herself out of debt. A registered nurse, she divorced and moved from Ottawa to Oliver, B.C., a town south of Kelowna, in 1998. Her then-boyfriend (now husband) wasn't working at the time, and the couple used the divorce settlement to start building a new life; they bought a used car, a place to live and furniture. "Then that money was gone, so I just started using credit cards," she says. "And it was so easy." Their debt started building, and their income wasn't sufficient to pay more than the minimum. New credit cards she'd never asked for arrived in the mail, and Sweet-Speiss started using them. She had 13 on the go at once, and eventually they were all maxed out. "I've always been employed. I make a good salary. But just paying the minimum every month was a lot of money," she says. Every six months, she phoned each credit card company to wheedle them into reducing her interest rate. She caught some breaks, but never enough to make a big difference: "It was a horrible way to live."

Sweet-Speiss says she wasn't frivolous with her spending, but in retrospect, she made questionable decisions. When her daughter would run up a large balance on her own credit card, Sweet-Speiss sent her money-even though it meant sinking deeper into debt herself. Sweet-Speiss borrowed against her home at one point and withdrew money on two separate occasions to consolidate her debt, but was still left with $40,000 on her cards, and it built up again.

After more than a decade of amassing debt, Sweet-Speiss turned to the Credit Counselling Society for help ridding herself of nearly $67,000 spread across 13 cards. Once enrolled, her interest payments stopped and she was put on a plan to pay down principal. She completed the program this in 2017. She still has a mortgage and a line of credit, but is finally free of high-interest credit card debt.

Sweet-Speiss says her mortgage would have been paid off a decade ago had she never borrowed against her house. Indeed, one of the problems with home-equity loans is that they cause debt persistence. HELOCs are marketed with little or no obligation to repay in a timely manner. For years, one of the main advantages of owning a home is the forced saving effect-paying the mortgage, combined with rising property values, builds equity. A HELOC undermines that dynamic, tempting consumers to access cash now rather than build wealth over the long term.

It marks a fundamental shift in the way Canadians think about homeownership. "Whatever happened to getting to the end of a mortgage and owning your home?" says Gilbertson, the trustee in Vancouver. "It's less about truly owning our homes today and more about having another revenue stream to fund our lifestyles."

VIDEO: How to keep from drowning in credit card debt

That Canadians are carrying record amounts of debt is not in dispute. But the magnitude of the problem is contested. "I think the fears are overstated," says Paul Taylor, CEO of Mortgage Professionals Canada. "Canadians are incredibly prudent, and history will show that." As the head of an industry association for mortgage lenders, brokers and insurers, Taylor isn't exactly impartial on the issue. But he points to a report from the Parliamentary Budget Officer released in 2017 showing that, since 2009, the debt service ratio-a measure of income spent to pay debt-has remained steady at around 14 per cent, not much higher than the long-term average. That's a sign that even though we have more debt than 20 years ago, we're not overextending ourselves, Taylor says.

But the same PBO report projects the debt service ratio will rise to an all-time high of 16.3 per cent by the end of 2021. Taylor says the premise is a "little bit flawed" because it presumes Canadians will make no changes to their finances owing to higher interest rates. "I'm certain people will become prudent again to ensure they retain that [historical] expense ratio," he says. Already, brokers have been fielding calls from Canadians about locking in their mortgages to guard against future increases, for example.

Bank of Montreal chief economist Douglas Porter also contends that too much emphasis is placed on the debt-to-income ratio. "We have long been of the view that much of the commentary on this topic has been overwrought," he wrote in a research note this month. The savings rate is close to the 25-year average of five per cent, which doesn't point to a consumer debt apocalypse. Rather, Porter expects spending to "gradually moderate" as borrowing costs rise.

Still, numerous surveys show Canadians are worryingly close to the edge. A report from MNP Ltd., an insolvency trustee, released in October 2017 found 42 per cent of Canadians said they don't think they can cover basic expenses over the next year without going deeper into debt. An earlier survey this summer found 77 per cent of respondents would have trouble absorbing an additional $130 per month in interest payments. And as organizations such as the IMF and the OECD have constantly warned, high household debt renders the country far more vulnerable to economic shocks.

When a downturn does hit, even a high income won't necessarily provide enough protection. Gene moved from the U.S. to Calgary 12 years ago to take a job with a major oil company, earning more than $300,000 annually. He purchased a home for close to $1 million and supported his wife, two kids and mother-in-law. In 2015, Gene lost his job when the price of oil crashed, and was out of work for nine months. He took out a home equity loan for $30,000 to make ends meet, and eventually found another job at a pipeline company, but for half his previous salary. A six-ﬁgure income would be more than enough for most Canadians, but Gene and his family were accustomed to their lifestyle. The kids were enrolled in extracurricular activities, and housing costs added up to $4,100 every month.

A year later, Gene was laid off again. "It was just devastating for us," he says, adding that he began questioning his self-worth if he was unable to provide for his family. He eventually found another job, but at a still smaller salary. On top of the mortgage and the line of credit, Gene had another $20,000 loan. When he first purchased his house, he didn't quite hit the 20 per cent down payment threshold; his bank offered him a loan to cover the difference. He had a couple thousand in credit card debt and a small, high-interest loan from EasyFinancial he'd taken to cover an unexpected medical expense for a family member. Finally, he faced a $90,000 tax bill, since he opted not to pay after he lost his job. Gene sought help from an insolvency trustee in 2017. "I just wasn't making enough money, and I had to protect the family," he says. Gene submitted a consumer proposal, but one of his creditors rejected the terms. In October, Gene filed for bankruptcy-just over two years after making a salary most Canadians can only dream of.

This sort of precariousness worries some experts, who fear wider implications for the Canadian economy. "We continue to see the household sector as accident-prone, with a complacency toward debt which could prove disruptive to the economy," wrote HSBC Canada's chief economist recently. The result is Canada is at "some risk" of a balance sheet recession-a period of slow growth or decline caused by consumers saving and paying down debt rather than spending. David Madani, an economist with Capital Economics in Toronto, doubts the growth Canada has seen in exports recently will be enough to offset the decline in consumer spending. "Canadian policy-makers have allowed household debt to rise above the disturbingly high levels reached in the U.S. in 2007, raising the risk of a similar potentially disastrous deleveraging down the road," Madani wrote.

Statements like that could be dismissed as fear-mongering, but the reality is Canada hasn't been in this situation before, and the outcome is impossible to predict. Canadians ignored warnings from policymakers about piling on debt for years because low interest rates were too enticing. Now households will have no choice but to dial it back. The only question is how bad the fallout will be.
RELATED: MORE ABOUT DEBT:

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How Canadian homes became debt traps - Macleans.ca

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In 1998, Ann bought a one-bedroom condo in the Kitsilano area of Vancouver. Gainfully employed at a printing company, she found the monthly mortgage payments were within her budget (Ann and others quoted in this story asked that Maclean's not use their full names).

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This article outlines the top five reasons that Canadians are in debt. The number one reason is abusing credit cards. It is an ongoing problem in Canada as it is so easy to use and the banks/businesses are so quick to give them out. The interest rates and penalties are high making it difficult to pay it off if the person gets into trouble. Other reasons include missing payments, spending more than you can afford, not having a financial cushion to fall back on and not being disciplined with your money. The article was good at providing some good tips to avoid the debt traps such as only spending what you have in the bank, not spending more than 30% of your credit limit, make your bill payments on time and save for an emergency fund.

I chose this website as it provides a good overview of the debt issues that Canadians face. Although it was not new information as had been covered in the course, it was easy to understand and follow.

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If you're like many other Canadian consumers, you likely have some debt on your plate. The average Canadian owes $8,500 in consumer debt, and that's not even including their mortgage. And about 12% of Canadians have consumer debt over $25,000, while another 14% have debts between $10,000 and $24,999.

That's a lot of cash to owe to creditors, especially when you're talking about debt that's attached to a high-interest rate. Which means those numbers will continue to climb, making it increasingly difficult to pay down debt, especially when expenditures continue to occur.

In fact, credit card debt is an ongoing problem in Canada, considering how easy it is to pay with plastic rather than with cash. And considering the sky-high interest rate that typically comes with credit cards, it can be incredibly difficult to pay down such debt as it mounts.

So, what's the real reason why debt in Canada is so high? Here are some of the more common reasons why Canadian consumers find themselves in debt.

Abusing Credit Cards

We've already briefly touched upon the credit card issues, but it is certainly worth mentioning more than once. Perhaps the most prevalent and common reason for consumer debt is the overuse and abuse of credit cards. While credit cards are meant to make it convenient to spend money without having to access cash - as well as all the rewards and perks that come with them - they can also put you in financial trouble if you're not careful with them.

Credit card debt can be very difficult to climb out of, especially when you take into consideration how high the interest rate can be on this type of debt. Credit card interest rate can be as high as 22% or more, and when the outstanding debt load increases, the interest amount paid can be astronomical.

Unless you get a handle on this debt and pay it down religiously, you could wind up with credit card debt that is a lot more than you can handle.

Missed Payments

Even one missed payment can put you in a precarious situation with your finances. With each missed payment, your outstanding debt load will continue to inch higher, bringing your debt load to a point that will make it much more difficult for you to pay down. And with every missed payment comes a late fee that's tacked on to what you already owe, bringing your debt even higher than it was before.

Spending More Than You Can Afford

This sounds pretty obvious, but it's worth mentioning. If you spend more money than you actually bring in, you can certainly expect your debt load to mount. Unfortunately, many Canadian consumers find themselves in this position, which is another common reason for mounting consumer debt in Canada. People like to have nice things, go places, and travel. But not everyone can necessarily afford what they want, but they spend like they can anyway.

If you spend more than you make, you can definitely expect your debt to rise.

Not Having A Financial Cushion to Fall Back on

It's always wise to have a little bit of money saved and tucked away somewhere in case of a rainy day. The unexpected can always happen, and it's always important to be prepared. If you're not, you could be scrambling to take out payday loans with exorbitant interest rates, borrowing money from friends or family, or racking up your credit card to cover unexpected expenses.

Not Being Disciplined With Your Money

When it comes to money, you absolutely need to be self-disciplined and responsible with every dollar you have in your pocket. More specifically, credit cards tend to be the source of troubles for consumers who are compulsive spenders with little self-discipline. If you're not responsible with your money and your credit cards, you can quickly and easily see your outstanding balance grow to the point of no return.

How to Avoid These Debt Traps

So, now that you know what can get you into financial trouble, how can you avoid getting stuck in these predicaments? Here are a few suggestions.

Only spend what you have in the bank. This is particularly relevant when it comes to using credit cards. It might be easy to whip out the plastic in order to pay for items, but you could find yourself in a sticky situation once the bill comes. Only spend up to an amount that matches what you have in the bank - or much less, preferably.

Don't spend any more than 30% of your credit limit. It's widely suggested that consumers not spend the entire credit limit amount. Doing so will not only make it much more difficult to pay down the balance (as well as the interest portion on top of that), but it could also negatively impact your credit score.

Keep your down to make it easier to pay off your credit card bills in full every month while also credit utilization keeping your credit score in check.

Make your bill payments on time. Forget about having to pay late charges on missed payments. Instead, make sure every bill is paid on time and in full every month. Not only will this help you stay on top of your debt, but it will also help to keep your credit score healthy.

Save for an emergency fund. Having a financial cushion to fall back on can be a real lifesaver when the time comes. Try to save up about three to six months worth of all the bills you usually have to pay every month just in case you lose your job, you suffer a medical emergency, or your car breaks down, among other things.

Final Thoughts

There's a trend across Canada when it comes to growing household debt. Don't be part of this trend, as it will do nothing but bury you in debt that you'll find extremely difficult to climb out of. If you are currently having trouble dealing with your debt, Loans Canada can help . We've helped thousands of Canadians just like you, pay down their debt and get back on track to a healthier financial future.

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The Top 5 Reasons Canadians Are in Debt | Loans Canada

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If you're like many other Canadian consumers, you likely have some debt on your plate. The average Canadian owes $8,500 in consumer debt, and that's not even including their mortgage. And about 12% of Canadians have consumer debt over $25,000, while another 14% have debts between $10,000 and $24,999.

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My wall covers debt traps such as payday loans, credit cards, financial mismanagement, and the institutions that provide these services. There were many cons of these types of access to cash businesses except for the business itself!  The only pros that I could uncover was that if someone needs money for an emergency, they are able to get it.  The other "benefit" is that the person can go outside of the banking system if they want to avoid paying taxes or child support.  Most of the information outlines the negatives to the people that are often forced to use them. They prey on those that can least afford it! It is very upsetting.