In 2023, according to a poll by CIBC, 18% of respondents said they would prioritize paying off their debts over other financial goals, such as savings or reducing discretionary spending. The trend in 2024 seems to be continuing, with an urgency for Canadians to address their repayment obligations.
As interest rates and inflation rates continue to rise, the financial strain on debt holders is becoming more pronounced. The Bank of Canada's decision to increase interest rates 10 times between March 2022 and July 2023 has significantly impacted debt holders, leading to higher monthly payments and potential financial challenges.
Understanding the Canadian Debt Landscape
It is imperative to acknowledge the prevalent financial challenges faced by individuals across the nation.
According to recent data, the average Canadian household debt-to-income ratio stands at a staggering 170%, indicating a heavy reliance on borrowed funds to sustain daily expenses. Contributing factors to debt burden:
Mortgage debt
Credit card debt
Personal loans (Ex. student loans, car loans)
As Canadians strive to prioritize debt repayment in 2024 they must utilize effective strategies to alleviate financial strain and achieve long-term financial stability.
Factors Affecting Debt Repayment
Economic:
With interest rates climbing to 7.2% in March of 2024, individuals carrying debt are facing escalated monthly payments, making it challenging to meet their financial obligations. This rise in interest rates not only amplifies the total amount owed but also poses a threat of late fees and additional charges for those struggling to keep pace.
The interest rates are expected to slowly decrease in 2024, but for many Canadians,the repercussions of heavy financial debt over the last few years won’t be going away that quickly.
Psychological:
Feelings of shame, guilt, and anxiety can prevent people from confronting their financial situation and seeking help. The fear of judgment or failure may lead to avoidance behaviours, further exacerbating the debt burden. Additionally, unrealistic beliefs about money and debt can create mental roadblocks, making it challenging to develop a proactive repayment strategy.
Overcoming these factors requires a shift in mindset, open communication about financial struggles, and seeking support from professionals who can provide guidance and practical solutions for debt relief.
Prioritize Debt Repayment for a Secure Financial Future
1. To avoid paying more in interest:
As interest rates rise, so does the amount of interest you’ll pay on your outstanding debt. By making debt repayment a priority, you can minimize the amount of interest you’ll pay and save money in the long run.
2. To improve your credit score:
Your credit score is impacted by your ability to repay debt. You can improve your credit score over time by keeping up with your payments.
3. To free up cash flow:
Reducing your outstanding debt can help improve your overall financial situation and give you greater flexibility with your finances.
By making debt repayment a priority, individuals can mitigate the impact of increasing interest rates, improve their credit scores, and enhance overall financial flexibility.
Seeking Professional Financial Advice
Professional financial advice is paramount in navigating the complexities of debt repayment. Licensed Insolvency Trustees possess the expertise and knowledge to assess your financial situation objectively and provide tailored solutions. Their guidance can help you create a strategic debt repayment plan that aligns with your goals and financial capabilities.
A Licensed Insolvency Trustee can provide budgeting tips for managing your debt. They can help you prioritize high-interest debts and offer individualized solutions for your financial situation. In addition, a LIT can help you set realistic financial goals where you track your progress regularly.
If you’ve taken a good look at your finances and still can’t find a solution, D. Thode & Associates Licensed Insolvency Trustees are here to help.