A new report suggests Canadians are comfortable with using debt as a financial strategy, even in an emergency. A recent Hoyes Michalos / Harris/Decima poll conducted by one of our MoneyProblems.ca debt advisors, Hoyes, Michalos & Associates Inc., indicates that Canadians largely do not have enough emergency funds in savings and would need to increase their personal debt in the event of a financial emergency.
In the survey, respondents were asked how confident they were that they could come up with $2,000 within a month for an emergency. Only 55% of Canadians were extremely or very confident they could raise $2,000 within 30 days.
What is concerning is that 92% of Canadians would need to rely on some form of debt to raise that amount in the event of a major emergency such as a car repair, medical bill or temporary job loss. One in five Canadians (19%) reported that, even if they could borrow the funds, they believe it would take them two months or longer to come up with $2,000. Shockingly, 7% of Canadians indicated that they could not raise the money no matter how long they were given. “That’s a lot of people who are already at their maximum borrowing capacity,” says Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc. and debt advisor at Moneyproblems.ca.
When asked to give their top three sources to raise $2,000 within the next 30 days, only 46% of Canadians indicated that they would rely on existing chequing or savings accounts as their primary source of these funds. Many would turn to one or more forms of debt: 56% listed line of credit, 47% credit card debt, 39% would borrow from friends or family and 22% would rely on a bank loan.
Canadians have become comfortable carrying higher levels of debt taking advantage of ultra low interest rates as an easy source of cheap funds. However, as economic conditions change, the cost of carrying such high levels of debt could quickly become overwhelming. While using appropriate credit in an emergency may not seem to be of concern, the real question becomes how quickly can you pay down that debt? Will you be borrowing the funds temporarily or will you ultimately be adding to an already heavy debt burden?