Indebted Servitude

The Vanier Institute of the Family recently released a report that said that the average Canadian family holds $95,000 in debts. The study did not say whether mortgages accounted for some of that burden, but I would like to believe yes, mortgages do factor in. If the opposite is true... well what does that say for our nation's ability to keep consumer debt at bay.

If you would like to read an abridged version of the report (aka the Cliff's notes) check CBC.

I found this study interesting for many reasons. It makes the connection between the 1990s as the decade that savings took a dive, compared to the new century which saw overall household debt increase substantionally. It would seem as a nation we are very good at making money, and very good at spending it. In fact we are so good at spending it we spend more than we make. This is not good.

As a general rule I hate debt. I see debt as a four letter word. Any amount of debt means servitude, you are restrained from living the life you want today because of the overspending you performed yesterday. It's a never ending cycle. You are not only indebted financially but you are indebted with your life. That couch, that car, that shopping spree (all bought on credit) is banked on your ability to produce income tomorrow. And as the last two year have proven your ability to make money may not entirely be in your own hands.

Not only are you required to pay it back but you will be required to pay it back with interest.

No one can argue that getting out of debt is the single most important thing for your financial future. Keeping track of your spending today keeps your future earnings free and you have bought yourself some well earned freedom. The old saying, "A penny saved is a penny earned" is a misnomer, it should be "A penny saved is two pennies earned".

To get out of debt, you need a plan. First things first, find out what you owe. You'd be surprised by the number of people who don't do a regular tally of their indebted servitude. Next is to find out your interest rates. Some loans, like car loans, can be as low as 5 per cent, credit cards creep up every year. That card you applied for last year at the 6 per cent interest rate is probably well over 12 per cent or even higher now. Make a point to check interest rates every time you receive your statement.

If your credit is in good standing and you have been making regular payments call and ask for a reduction in your interest rate. This works, trust me. You can do this twice a year. If you've made some bad decisions, raked up a large credit card debt and missed a few payments your rates will be over 20 per cent. Doesn't have to stay that way. Buckle down. Make your payments before the due date and call in a few months to ask for a reduced interest rate.

Make sure you check your statements for the payment due date. These change frequently. If you are good at checking your bills, you will notice the due date used to be the 15th of the month, but then suddenly the money is due on the 13th. This is how banks make their money. They expect you to not check your dates. "Would you look at that you were two days late! Poor baby..." they can now charge you extra interest or can up your interest rate which doesn't go down until you call.

There is some old advice that says you should pay off the card with the highest interest rate first, but I have a different approach. You should pay off the card with the lowest balance first. Let's say between you and your spouse you have three credit cards one with $10,000 balance, one with $5,000 balance and another with just under a $1,00 owing. If it were me I would pay the $1,000 card off first even though it may be the card with the lowest interest rate. Being able to cut up a card and scratch it off your list is a major boost to debt conquering endeavors. The card with a $10,000 owing is going to take a long time to bury and you are more likely to get discouraged along the way. It's best to keep the momentum and take care of it in steps and stages.

Get out some books at the library on personal finance, read, read, read. Take control of your finances and make a plan. It may take years to accomplish your goal but a worthy goal it is. For a little comic relief along the way check Confessions of a Shopaholic out of your library. Just make sure you bring the books back before the due date...the library charges interest too.