Alex and Sofia

Alex and his wife Sofia are clients I have been working with for a number of years on their financial plans. When I came home today I had a voice message from Alex asking me whether I had read the article in the Toronto Star by Sunny Freeman of the Canadian Press: 

 CANADIANS ADDING DEBT FASTER THAN AMERICANS

I had read the article but I wanted to find out why that particular article had propelled Alex into making the call asking me if I had read it.  My first thought was, I hope these guys are not back in a financial mess. We are due to meet in four months for their annual financial check up.

When I returned the call Sofia answered and she told me they were just talking about the article and that they both wanted to talk to me about it.

 Alex and Sofia wanted to ask me to write this blog hoping that it might help others.

The article states that, “Household debt is now rising faster in Canada than in the United States and will continue to grow as low-interest rates encourage consumers to spend beyond their means.”

These are frightening, ominous words. They spell a time when rates will climb and what will happen to consumers with huge balances on Home Equity Lines of Credit and Credit Cards or unsecured lines of credit.

As consumers, we fail to learn from others. We are affected by our employers decisions to cut back when the market for their goods and services are not in high demand.  They lay us off. They ask us to take early retirement. They stop hiring and in some cases the businesses might shut down entirely.

We, the consumers, pay no heed to all this action happening to us or to friends and family.

Our economy is not growing as expected. July to September it grew by 1.6 per cent which is down from 2 per cent in the second quarter and it’s a far cry from the growth of 5.8 per cent gained in the first quarter.

The message to us the consumer is to tighten our belts and not buy on credit.  Although interest rates are low and it is very tempting to buy and buy on credit it is time that we go back to the old ways and only buy what we can afford with the cash we have available to us instead of using the almighty plastic.

Someone told me that if we don’t spend the economy will come to grinding halt.  No, it won’t come to a halt and certainly not grinding. We can spend and yes we should spend, but purchasing endlessly on credit is not wise spending. Furthermore, even if rates are low the rates on the credit cards do not change they are still at 18 to 29 or even 32 per cent and they never go down, unless the financial institution wants you as a new customer. They will then offer you an introductory rate for a short time. Then watch the rates go up to the same old rate. But by that time, you are hooked and their hands are deeper in your pockets. How can you move? Where do you go from there, to another introductory offer? Before you know it you have four to six cards that were all introductory offers.

My recommendation to you is to learn from the large companies out there. Look at General Motors; they were in deep trouble, they closed plants, laid their people off and now they are showing a profit.

As a consumer make some changes in your management of your finances. Cut back on going out to dinner every week. Just because it is in this season that does not mean you and your family needs to have it.  Think of things you can do as a family. Take a look at that gym membership. When did you last go to the gym?  Having it is costing you money. Run your family finances like a business when it is slow. Stop and take a look at your bottom line. Will you be able to meet the financial goals you set if you continue to spend and buy on credit as you are presently doing.

 Make some changes today. Pay a little more on your mortgages increase, your payment on your credit cards, cut the cards up or freeze them like my sister did.

How would you feel when rates are high again and everyone is complaining while you are sitting back enjoying your planned success?

Make some changes now!

LIVE LIKE NO ONE ELSE TODAY SO YOU CAN LIVE LIKE NO ONE ELSE TOMORROW. 

Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com