When does owing money become healthy debt or unhealthy debt? When will you be debt free? Can you handle having debt? What does handling debt mean? These questions and many more can only be answered by… you!
I was reading a recent article on Yahoo about how Canadians are potentially facing debt fatigue which keep people on the beaten debt path. It’s not surprising though with the amount of people who are swimming in debt with nowhere to go.
What I found interesting was that maybe many Canadians find having debt less of an issue because interest rates are so low. Really? Is that how you feel? I would hope that we as Canadians take that as a warning as well as a blessing to make sure that we are money ready just in case some twist of financial fate comes our way.
I’m a planner so when we started using our budget spreadsheet it was a relief knowing that we were spending less than we earned with some room for movement just in case.
When will you be debt free?
A recent poll by CIBC suggests that age 53 is when most Canadians hope to be debt free which is down from age 56 in 2011. What was interesting when I read the stats was the current debt for those aged 55-64 are lines of credit (40%), mortgages (32%), credit cards (29%) and car loans (25%).
I agree with Kristina Kramer, Executive Vice President, Retail and Business Banking of CIBC with what she says about Canadians “unless they have a solid financial plan in place they may still find themselves with significant debt obligations as they near retirement.” Hoping your finances will fall into place as you near retirement is not good enough. You must set goals and have a plan.
We all face challenges in our life at some point and for the most part we’ve created a small percentage of these pitfalls we must climb, debt included. No matter how you managed to secure debt in your name you still need to find a way to pay it back. Debt fatigue as I mention above is when someone is in debt and simply can’t pay it back so they do the natural thing, they give up.
Yes, that’s right they give up and they keep finding ways to create more debt by applying for more credit cards until the lenders feel you are over-extended or are faced with none other than bankruptcy or other means to get that debt lowered or to diminish it. Not fun especially if you wait until the end to seek help. It doesn’t have to be that way.
Know the warning signs that your debt is causing you serious financial issues and jump on it before you have to make decisions you’d rather not. Start with a budget, track your expenses and live with-in your means. It really is that simple.
If you aren’t the budget type a spending journal will work just as well but it’s more about knowing how much money you net and how much you are spending. It’s a financial awareness and without it you are playing a guessing game with your financial health and future.
Don’t let low-interest rates fool you into thinking you have more money to spend than you actually do either, do the math. Find out just how much that debt will cost you in the end and think about what would happen IF interest rates went up. Could you handle it financially?
Healthy debt or unhealthy debt
That type of debt above is scary for many people but for others debt may take on a different role, especially when that debt is making them money. You have to spend money to make money as the saying goes. I had a fan email me a few weeks back wanting me to talk about why having debt could be a good thing rather than always being labelled as bad.
I don’t disagree that debt could be a good thing BUT only if you have the money to back that debt. Not everyone wakes up in the morning smiling that they have debt. Most people don’t associate debt with being good nor do they get excited chatting about how much debt they hold. You don’t hear that, you hear about people excited that they are debt free with no financial worries.
Is there good debt?
The word good and healthy when it comes to money means the same thing to me. I guess that all depends on how you view debt. Some say an education debt is a healthy debt to have in your back pocket where I say if you have no career after you spent $60,000 in University how healthy is that debt then?
Debt is debt… you owe money and although you are investing in yourself if nothing comes of it then you are back at square one. Again… risk! Just know what you are getting yourself into and don’t be fooled that it will go away fast either. If you have OSAP loans it takes time to pay them back depending on how much you can afford to put down on your school debt.
The people who have debt and are investing money to make money might be the one’s smiling, but again with any debt comes risk. Education is investing money, just in yourself.
Just because you see trends or listen to what the experts say “might” happen with the markets (including job markets), real estate and other investments doesn’t mean you are in a safe place with your debt. In an instant everything can go south and you have more debt that you can handle and no money to pull yourself out.
I know that everyone has their own ideals when it comes to having debt and whether it’s healthy debt or not but I believe it’s personal. We can’t go around judging what people do because we don’t know what they have and don’t have. Frankly, I don’t care. What I do care about is our finances and sharing what we did. It’s up to you how you plan your financial future. I can’t hold your hand, no one will.
Lots of financial feelings if you may are personal. You might find someone is happy as a horse with $100,000 debt and causing him/her no stress and they don’t mind paying interest on their debt. All they care about is living day by day and enjoying life and hoping that where the debt sits that it either works out or creates more wealth for them.
On the flip side you might have someone like my friend Tony who had $100,000 worth of debt and that really bothered him and put a dent in the family finances. He clearly did not think he had healthy debt and quickly worked out a financial plan to get out and sounds pretty happy to me these days.
Paying off the mortgage
Some fans have asked why we decided to pay off our mortgage so fast when the interest rates were so low? Good question, and the answer was so we could sleep at night. We didn’t ignore our retirement savings and everyday life to pay off our mortgage because we wanted to be debt free, rather we took a balanced approach to our finances.
We have zero debt now and are free to invest it how we wish without having to worry that we still have a mortgage and we lose the shirt off our backs because our investments tank. That doesn’t mean we don’t have bills to pay and money to come up with to maintain our home because we do.
Even if house prices sink we still have the roof over our heads and prices are relative no matter which way you look at it. At least to me it seems that way unless you owe more than what your house is worth which happened to many of our friends in the USA. I’m sure things would never get that bad in Canada but I’m sure they said the same thing in the USA. Never say never, right?
Holding debt for the right reasons
Others feel comfortable holding mortgage debt and investing every penny they’ve got in hopes of grand returns and that’s fine as well if they are happy with their debt to income ratio and financial savings.
I don’t know how healthy that is for them but if they can sleep at night with no worries then so be it. To be honest I think it’s great when someone has it all figured out. That’s not me as I’ll probably never figure it all out because I find circumstances always change (there is that risk again). Where the issues may creep up is if the financial road they envisioned doesn’t work out. How will they handle that emotionally and physically?
I think this is why many advisors ask how you feel about certain levels of investment strategies. If you can’t handle your money dipping and will go crazy you might not want to invest it in something that may be volatile in the markets. Then again that market might rise up and make you happier than you ever dreamed. In then end… it’s called “risk”.
Do you think there is such a thing as healthy debt? At what age to you plan to be debt free?
If you don’t already know I have a second Facebook page called The Free Recipe Depot where I share recipes from other Foodie Bloggers from around the world.
Once a week I pick one recipe that has been submitted as my Top Recipe of the week. Trust me when I say this is no easy task as some of these foodies can cook up a storm.
This week I picked a summer salad for all of you that love to eat salads during the hot weather. Check out this Lemon Basil Pasta Salad made from the foodie blog An Affair of the Heart. I love everything to do with basil and this year our basil is growing faster than ever. Enjoy!!
Weekly CBB posts
If you missed any CBB posts from the week here is the list of posts you can catch up on reading!
Happy 4th of July to all of my American readers!
- How spending money requires time: Our June Budget Update
- Should grocery stores bother having a garden centre? – The Grocery Game Challenge July
- Does buying second-hand leave you out of touch with real prices?
- Cheddar chive biscuits (you have to try this simple recipe)
- Celebrate Canada Day enjoying our beautiful country!
Every week I will pick a blog post of the week from around the web that I found interesting and want to share with you and an Editor’s top blog post pick.
Editor’s blog post pick of the week
- How to switch to collecting experiences instead of things– The Simple Dollar
There comes a point in our life where experiences mean more than having things and I agree. I’d rather have the small house and live a comfortable life doing what I love which is exploring the world. I’d rather spend time with friends and family over collecting toys I don’t need or might not ever use. Time is precious I agree. A good read!!
Blog post I enjoyed
- RRIF’s How they work and tax planning– The Blunt Bean Counter
Well, that’s a wrap for this PF Friday’s Grab a brew #79. Happy budgeting and I’ll see you here again next week when I do it all over again.
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