Pay Off Debt Before Your Debt Repayment Costs Increase

Can you afford to pay off debt that you have today, and what about tomorrow?  How much debt is too much? How confident are you in your plans to reduce your debt?

Most Canadians carry some form of debt, whether a mortgage, bank loan or credit card debt.  The question is not how much debt do you have, but are you able to afford that debt and can you ultimately pay off debt that you have.  If your income is sufficient to be able to meet your debt payments each month then you may be feeling secure.  But what if things change — a job loss, income reduction, illness or other catastrophic event.  How well can you weather the storm?  Even if you are feeling secure in your own circumstances, what about changes that are beyond your control?

Interest Costs May Rise

The cost of carrying debt in Canada has remained at historical lows in recent years.  Statistics Canada reported that the Debt Service Ratio (the ratio of mortgage and non-mortgage debt to personal disposable income) for Canadians was 7.2% in the second quarter of 2012, well below the long-term historical average of just over 8%.  This trend cannot continue indefinitely. Should interest rates rise significantly, you may find yourself quickly overwhelmed. The Bank of Canada recently predicted that to bring interest rates back to a more normal level, higher interest rates could increase the cost of borrowing by more than 3%. While it won’t happen overnight, are your ready for even a partial increase in interest rates?  How will even a small increase in interest rates affect your ability to pay off your debts?

Develop A Plan To Pay Off Debt Today

If your debts are high, there is no better time to take control than now. Start by developing a debt management solution that will help you pay off your debt.  If your debts are more than you can handle today, consider talking to a professional debt advisor.  An experienced bankruptcy trustee or credit counsellor can help you analyze your situation and help you come up with a debt management solution that works for you.

Pay Off Debt - Debt Service Ratio Canada

Can you afford your debt if interest rates increase? Will you still be able to pay off your debts if your debt repayment costs are higher than they are today?

Category: Debt Management |

Oct 10, 2012


About Sharon Hoyes

Sharon Hoyes, CA, CPA is a Chartered Accountant and Managing Editor at writing about personal finance and consumer news and how it affects your debt.

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