Don't Fall Into the Debt Trap
Marketers are capitalizing on Canadians' seemingly worry-free attitude about gaining more and more credit. Furniture and electronics stores used to give deals whereby you paid on store credit with no interest for 6 months. Now it's becoming increasingly common to see deals where there are no payments for 12, 16, even 24 months. Payments are being spread out into smaller increments over longer periods of time in an attempt to make big-ticket items enticing to consumers.
Similarly, credit card issuers like Visa and MasterCard once required minimum payments of 3% of the total each billing period. That has dropped in many cases to 2%, meaning you could potentially take years longer to pay off credit cards if only making that minimum payment each month.
Some interesting statistics:
Debt continues to rise: Statistics Canada reports that the ratio of mortgage debt and consumer credit to personal disposable income rose to a new high of 105.8% in the fourth quarter of 2004. Translation: we owe more than $5 in debt for every $100 of income we earn. This compares to 74% back in 1980. For more information on debt, visit the Debt section of this site.
Consumer bankruptcies: 84,000 people went bankrupt in 2004, compared to 21,000 in 1980.
Canadians' household debt loads now average $66,800.
What can you do to avoid falling into the debt trap? Plan carefully. Budget for big ticket items and avoid falling prey to enticing "don't pay until 2009" deals - remember, putting off paying for something still means you have to pay for it sometime. And, like always, make sure you read the fine print of any credit deal that you are considering.
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