In the fourth quarter of 2012, the average Canadian household owed a record $164.97 in debt for every $100 of disposable, after-tax income. That’s only slightly less than US household debt levels just before that country’s real estate market collapsed. But while debt levels are still climbing in Canada, the good news is that they’re climbing slower than they were.

Thanks to recent tightening of mortgage rules and the Bank of Canada’s constant warnings about too much debt, Canadian debt levels finally seem to be stabilizing. The trouble is, debt is still much higher than it should be.

A few decades ago, things were very different. Debt was thought of as scary. Children were taught the value of saving and investing. Canada’s savings rate was the envy of much of the world. When we needed something, we saved our money until we could afford it.

But today, things are different. We’re constantly being encouraged to indulge in every possible luxury, regardless of whether we have the money. And why not? Credit’s cheap and we have lots of equity in our homes. So spend, baby, spend!

The downside of this new mindset is that we’re living well beyond our means, going deep into debt and paying huge interest charges. But there IS a way out. Here are some practical steps:

• Keep a written record of what you’re spending, on what and why.
• Identify which purchases are “needs” (food, housing, transportation) and which are just “wants” (eating out, new gadgets, the latest fashion) and see which ones you can do without.
• Once you know how much you actually need to spend each month, make a budget that allocates every dollar and stick to it.
• Avoid going into debt for “wants” and pay off all debt as quickly as possible.
• Talk to me about mortgage strategies that can help you reduce the total interest you’re paying on existing debts. Call today! 604-961-2734