104 – Household Debt and Insolvencies are Surging in Canada

Wayne Kay 00:04
Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. 

I’m Wayne Kay. Coming up in today’s show, we’re going to talk about household debt and insolvencies that are now surging in Canada.

We’ve got record high level debts. Why is this important?
Why is this happening? Will this hurt our economy?
Have we seen the insolvency rates change in our country?
What can you do to protect yourself from the rising interest rates?
And what can you do if you’re a saver and you don’t have any debt?

To help us with this and more. My guest today, Derek Chase from Chase & Associates Licensed Insolvency Trustee serving Vancouver Island, Sunshine Coast to BC, and the BC North Coast. Welcome back, Derek.

Derek L. Chase 00:57
Hi Wayne, it’s great to be here today.

Wayne Kay 00:59
Well, I love this topic and as we’ve been watching news and seeing what’s going on in the country, it is a stressful time with all these interest rates going up and consumer debt. Well, it’s only going one way and that’s a big arrow shooting straight to the sky.

Derek L. Chase 01:17
There’s headlines that are abounding that are talking about household debt in Canada and Canadian household debt being at record high levels. And those are big numbers.

They’re so big that they almost are kind of abstract or meaningless. Like billions, trillions, millions. It’s just a heck of a lot of debt.

Wayne Kay 01:41
Wow. And what do you think? Is it going to get worse?

Derek L. Chase 01:46
Yes, it’s hard to see reasons why it’s going to get better. It’s an ominous topic, but it’s out there so we have to deal with it.

Wayne Kay 01:58
Well, we do because people are going to go through this situation and they don’t know where to turn. So hopefully that’s what this podcast is about. We can give some people some advice and help when they’re in a situation where the debt is just too much to deal with.

Derek L. Chase 02:13
Yes, I think that’s really important to know because get that situation where you’re feeling hopeless and really struggling – causing relationship problems or health problems and sleepless nights and it’s just a very unpleasant setting. 

It’s important to know that there are federally approved programs to help to ease that pressure. And if you don’t know about those, that’s a tough spot to be living. So this is important information for Canadians.

Wayne Kay 02:46
So we’ve seen families having to decide on paying the rent or their mortgage because so many have been caught up in these increased mortgage rates that are here. 

And then there’s also that I still need to get food, I need to feed the kids, we’re going back to school. Where are we going to get the money? We put it on our credit card and the snowball just starts happening. Right? It starts small, but you’ve seen it where it just keeps growing because there’s more month than there is paycheque.

Derek L. Chase 03:20
Yes, for sure. And I think some people would say Canadian household debt is at a record high level. So what? Why is that important?

And I don’t think people realize just the power behind these big macroeconomic factors. When interest rates jump up quickly and faster than people expect and there’s all this debt out there, it just ripples through the economy. 

All of a sudden, people change their spending patterns and it changes people’s lives and it changes businesses and it changes patterns where people are buying. There’s all these ripple effects that happen when there’s a couple percent higher interest on lines of credit or on mortgages. So it is important to everyone because it touches our lives.

Just to understand these currents that are pushing us around, I think it’s wise to gain an understanding of them and what they are likely to do. So I would forecast that there’ll be less discretionary spending over the next couple of years because people will have to reallocate money towards their new mortgage payment. They’re not going to have that $500 to go on a weekend trip somewhere. It’s going to be used up for housing. That’s just one example amongst many where in general, there’ll just be less discretionary spending, in my opinion.

Wayne Kay 05:05
But yet people are still spending summer vacations coming to an end. And the amount of people out traveling, even though I don’t know about there, but the hotel costs that I’ve seen are astronomical these days. And I think, how can a family go on vacation for five, six, seven days when hotels are costing $400 a night? It’s wild.

Derek L. Chase 05:31
Yes. And that overall concept of inflation pushing costs higher, in turn, would cause that family that we’re using as an example right there to put it on their credit card or line of credit. Then all of a sudden, they’ve got higher interest rates on their line of credit as well. 

So it’s not trending in a good direction there. And eventually there’ll be consequences for that. So it’s important to understand, it’s important to talk about and get your head around. But it’s fairly ominous for sure.

Wayne Kay 06:12
So when it comes to Canadians having all this debt, how many are getting to a point where they’re seeking out Consumer Proposals or Bankruptcies? Do we have any stats on?

Derek L. Chase 06:26
Well, yes, the federal government does keep track of that. And the department that regulates the insolvency filings in Canada is called the Office of the Superintendent of Bankruptcy. And every month they post statistics for insolvency filings in Canada and even in each individual province or territory.

And there’s no doubt about it that insolvencies are surging as compared to 2022. I see these monthly stats, and virtually every month, the increase ranges between 19% to 30% higher than the prior year. Those are significant bump ups year over year. And it’s pretty obvious why. I mean, we just touched on a couple of examples, and unfortunately, we don’t see that trend changing for a little while.

Wayne Kay 07:28
What would it take to change it, I wonder? All of us will have to just stop traveling as a whole and I mean, we still have to eat, we still have to buy gas. I don’t even know how this is going to change. It’s a very weird place to be.

Derek L. Chase 07:46
Yes, that’s a whole other discussion. But I think we have to be talking about productivity and making people’s lives better on the productivity side as opposed to the feeling that we’re getting taxed to death every time we turn around to do something. It’s crazy that way. 

But yes, if I could make that change by pushing a button, I would because I really feel for people these days and just the feeling of walking out of a grocery store with barely anything and you’ve paid a fortune for. It’s not pleasant, it’s just tough. The Canadian people, I’d say, are groaning right now.

Wayne Kay 08:35
Absolutely. So what’s your advice to protect ourselves from these rising interest rates? What should we do?

Derek L. Chase 08:44
Well, sometimes there’s not a lot you can do, but some things that you can look at are whether you’ve got any redundant assets that you really don’t need. You could maybe liquidate and put it against your line of credit or credit card. That can sometimes be helpful.

 You can certainly review all the interest rates that you’re paying on different products and shuffle some things, some balances around to push more money into the lower interest rate product.

You could go to your bank or credit union and ask for a consolidation loan to try and consolidate to get away from the products that have the super high interest rates into one that’s more of a normal rate. But even that normal rate has gone up substantially. 

So those are some of the things that you can do. If you’re already, though, in a position where you’re carrying too much debt, then you’ll probably have to turn to one of the federal options, which is more powerful, and that would be to make your creditors an offer through what’s called the Consumer Proposal to pay back perhaps just a portion of the debt over time at 0% interest. That’s become a very popular option right across Canada and it’s very effective.

Typically it runs very smoothly. So if you’ve never heard about that before, you should really do some looking into that option. It can be a game changer and that’s federal law as is getting protection through a Bankruptcy filing, which can sometimes also be the right move, especially if you want something that’s relatively fast and inexpensive. 

Sometimes Bankruptcy can fit the bill a little bit better and even though that term might sound scary, we just look at it as another tool in a toolbox. Just like if you’re going to fix a leaky faucet and you need a screwdriver or a wrench. So educating yourself on different ways that you can adjust your finances is one way to protect yourself from paying high interest rates.

Wayne Kay 11:00
Yes. And I think we’re seeing a lot of people that are really starting to question whether they need a new vehicle right now. Maybe they’re used to buying one every four years or every five years and they’re looking at the cost of them now and they’re so high. And I’m seeing more people that are saying, yeah, I’m just going to hold on to my vehicle for a couple of more years.

Derek L. Chase 11:23
Yes. Maybe the pendulum will swing back towards fixing things yourself more than just sort of using the plastic thing that you throw out. Fixing things yourself, having the backyard garden, doing things that you can do as opposed to hiring it out and having that impact your cash flow. 

I think people will start becoming more creative in that regard and yes, like you say, keeping that vehicle and just fixing it, maybe even fixing it themselves.

Wayne Kay 11:57
Right. With YouTube, you can do all kinds of things these days. Not me, but everybody else can.

Derek L. Chase 12:03
That’s right. Good point.

Wayne Kay 12:05
Now, what if you’re a saver? You don’t have debt. I guess you’re living perfectly. Right?

Derek L. Chase 12:11
You know, that’s the other side of the coin, isn’t it? If you don’t have any debt, you’ve managed to organize your affairs such that you’re going in that positive direction. It’s good to know that you can actually get some interest on your money out there. 

Now, as part of the financial counselling sessions that we do with people, there are some banks that will give you anywhere between two and a half percent to five percent interest on your savings. So it’s also something to be aware of and rather than having your money sit there at 0% interest, get a few bucks by putting it into a place that will pay you a little bit of interest income on your savings.

So even though the borrowing is more expensive for those people that are savers that haven’t been getting any interest on their savings for a long time, well, now that’s available. Even if you’ve only got a small amount, hey, well, why not get a few bucks on it? It’s better than nothing, as they say. And maybe it buys your coffee for the week or the month.

Wayne Kay 13:23
Right. And it keeps growing, it compounds. Start playing with the compound interest calculator. It’s one of my favorite things to play with.

Derek L. Chase 13:32
Yes. The banks have competition in the form of online banks and that’s where you can see a little bit more competition on the interest rates that they’re paying to savers. So yes, something for people to research if they want to make a bit of money.

Wayne Kay 13:52
Yes. It’s funny you brought that up because I was just watching a video on that and yes, you don’t even have to lock it in for three years or five years. There’s all kinds of different saving techniques out there where your principal is relatively safe-ish. So I thought that’s great advice.

Derek L. Chase 14:13
Yes, that’s just another bit of financial advice to be aware of. And ultimately, that’s how you protect yourself from rising interest rates is having that financial literacy, educating yourself, being creative and taking on the challenge and winning that challenge.

Wayne Kay 14:33
I think it’s so good that when they work with a Licensed Insolvency Trustee. You do the credit counseling because there’s a lot of families and people that just didn’t grow up being educated when it comes to money. We learn as we go, and there’s so many things that I wished I’d known 25 years ago that I’d put into place.

It would have made my financial life even better. Well, what’s some advice for learning? When you say there’s ways to learn about financial literacy, what advice do you have for that?

Derek L. Chase 15:10
Well, there’s a lot of different sources that you can use to educate yourself and become more financially literate. But as part of those financial counselling or credit counseling sessions, the best case scenario is where you make a decision as a household or as a family to really communicate about this topic and you can really make it a teachable moment.

I was just chatting with a person and we were talking about this. And talking about their soon to be teenage children. I’m saying, well, this is great. You’ve stopped the negative momentum of this credit card interest rate. Now you’re going to be able to save a little bit every month. 

And why don’t you go the distance here and make this a real teachable moment for the whole family and take it on as a challenge to try and get to a certain savings amount in six months.Just talk about it around the dinner table and almost make it a challenge or this whole learning experience. And you can pass along some great lessons to those kids that will be part of their lives.

And that really warms my heart when you see the impacting, the whole family and setting off the next generation in a positive path. So that was a good meeting.

Wayne Kay 16:39
That’s a great way to end on such a positive note. And I guess for anybody listening and you’re in a bad financial situation, you’re not alone. Just seeing what’s happening in our country.

Derek L. Chase 16:51
Yes, I agree, you’re not alone, but there’s resources, there’s help, there’s support and control the controllables and there’ll be better days ahead.

Wayne Kay 17:03
Absolutely. Derek, always a pleasure. Thanks very much for offering advice to all of our listeners. I sure do appreciate your time.

Derek L. Chase 17:12
My pleasure, Wayne. You have a great day.

Wayne Kay 17:14
My guest today, Derek Chase. You can learn more or schedule a free consultation with Chase & Associates Licensed Insolvency Trustee by going to their website, bankruptcytrusteebc.ca. 

That’s it for today’s Debt Matters Podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks for listening.