How much do we owe, and what are we doing about it?
For some Canadians, the debt bomb already went off — and they survived the blast
This story is part of a series we're calling Debt Nation, looking at the state of consumer debt in Canada. Look for more coverage in the coming days, including on car loans, mortgages and credit card debt.
Canadians are positively swimming in debt.
More than $2 trillion, in fact, according to the latest numbers from the Bank of Canada — up by almost four per cent in the past year, despite repeated dire warnings from economists, policy-makers and central bankers.
Canadians now owe roughly $1.70 for every $1 they earn, a ratio that experts warn is among the highest in the developed world.
And Canadian families are feeling the pinch.
Civil servant Lee Hyndman lives in Vancouver with her husband, Chris, a seasonal worker, and their two kids. In the past, the family didn't have to worry about keeping a roof over their heads.
But all that changed with a few unexpected calamities.
While Lee was on maternity leave with their second daughter, Chris's father died. Shortly after that, Lee suffered a collapsed lung, a development that meant she wouldn't be able to go back to work as soon as she'd planned.
That led to a lengthy dispute with her employer over pay and benefits. The fight was resolved over time, but it left the family without enough cash to pay their bills for months on end.
"At that point, my finances were in ruins," she says.
READ MORE IN OUR DEBT NATION SERIES:
- Homeowners worried about paying down debt as interest rates go up
- Long-term loans are the fuel powering Canadian car sales
- Bank of Canada's economic cheer will be painful for some: Don Pittis
- Bank of Canada raises interest rate and hints at more hikes to come
COMING UP FRIDAY:
- Don Pittis explains why credit card debt can be a dangerous trap
In 2015, the family turned to their local church, where they connected with a community of people who were eager to help. Soon they were linked up with the Credit Counselling Society of British Columbia, who got them on the path back to financial independence.
"There were people out there willing to help us, and I think they were sent to us to show us not to give up," she says.
Now, the Hyndmans are actually able to withstand this week's interest rate hike more than most, since their debts have been consolidated into one fixed monthly payment.
"We are learning to restructure our finances and start saving money," Lee said, adding she's no longer afraid to answer the phone for fear it was another creditor.
In the case of Toronto event planner Helen van Dongen, the debt problems started in 2013, when she was restructured out of a corporate career and had to fend for herself as a freelancer.
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The work soon dried up, which ate into her income, but her spending hadn't slowed down at all.
At her lowest point, she was $140,000 in the hole, she recalls, with "two credit cards maxed right out and two lines of credit." She guesses she came within $5,000 of going completely under.
Van Dongen looked to her sole remaining asset: her Toronto condo. She sold it, paid off her debts and was even left with a modest nest egg of $30,000. "The relief of getting rid of that $140,000 albatross around my neck was enormous."
She didn't think she'd ever be a renter again, but she's pleased with the new path she's on. "There were some dark moments," she says. "But ultimately mine is a good-news story."
The same can likely be said of Pauleanna Reid, who made a series of what she calls "bad decisions" in her youth that added up to $50,000 in consumer debt in her twenties.
She started out ahead of many in life, in a middle-class two-parent upbringing she describes as "quite comfortable." But the 30-year-old says she developed a taste for the finer things during her high school years, while dating a man who was running a money counterfeiting ring.
"I was exposed to a lot of money very quickly," she says. "A very fast lifestyle — and I knew it was wrong at the time, but when you're 17, when you're young and naive, you know it's wrong but you kind of do it anyway as long as you can get away with it."
That relationship ended, but it wasn't long before she was living on borrowed money to finance the lavish lifestyle she had grown accustomed to.
"In order to keep up with everybody else, I lived off my credit card," she says. The bills kept piling up, but they were easy to ignore, she says. Her lowest point came in the form of a phone call with one of her many creditors.
"A collections agency called me looking for their money ... and he had a heart-to-heart with me for a second, [he said] all things aside ... you are way too young to have this kind of debt ... what are you doing with your life?" she recalls him saying.
That tearful phone call was the harsh truth she needed to hear. She started working with a financial adviser and credit counselling agencies to get back on the right path, starting with the tiny step of setting aside $50 per month toward debt repayment.
Today she's within $7,000 of being debt-free. Better still, she supplements her $65,000 day job as an executive assistant with two side hustles that bring in extra cash. It makes for a lot of 18-hour days, but "I just made the choice and the decision to change it," she says.
You are way too young to have this kind of debt ... what are you doing with your life?- Pauleanna Reid, recalling what a collections agency told her
Economist Frances Donald, with insurance conglomerate Manulife, has been among those banging the drum about Canadian debt loads for a while, which is why she'll be closely watching the impact of this week's modest rate hike from the Bank of Canada.
Donald isn't so much concerned with the amount that Canadians owe in absolute terms — it's what it costs to finance those debts that keeps her up at night.
Average household debt per city*
By Donald's math, about $14 out of every $100 that Canadians take home currently goes toward paying down the principal and interest costs on their debts.
Every time the central bank raises its rate to make borrowing more expensive, that figure inches up a little.
"What we're going to witness is that $14 starts to climb to $15 or $16 or higher," Donald says.
"How high it goes depends on how high interest rates are raised," she says. "So where's that extra money going to come from?"
When faced with higher costs of financing debt, consumers will typically dip into other sources to pay it off. That means they'll raid whatever piggy banks they have, consolidate their loans into as low a rate as they can find, and stop spending on luxuries like new cars, new clothes or a meal out at a restaurant.
While $100 reallocated away from a restaurant meal and toward debt repayment may not sound like much, it makes an impact as it filters down through the economy, Donald says.
"That restaurant makes less money and doesn't hire that incremental person," she says. "That incremental person doesn't have a job and so they don't go out and spend money."
"The feed-through effects can actually be very pronounced," she says, which is why it's long past time for Canadians to start taking the warnings about debt loads seriously.
Van Dongen ignored them for years, and regrets it.
"If you mess up, fess up," she says. "And get some help."