Estimated reading time: 9 minutes
Healthy debt is a term that has become the norm only to make Canadians feel better about their financial situation.
- When does owing money become healthy debt or unhealthy debt?
- What does handling debt mean?
- When will you be debt free? Can you handle having debt?
These questions and many more can only be answered by… you!
Canadians Plagued By Debt Fatigue
I was reading a recent article on Yahoo about how Canadians are potentially facing debt fatigue which keeps people on the beaten debt path.
It’s not surprising, though, with the number of people 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.
I hope Canadians take that as a warning and a blessing to ensure 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 poll by CIBC (story gone) suggests that age 53 is when most Canadians hope to be debt free, down from age 56 in 2011.
What was interesting when I read the stats was the current debt for those aged 55-64 is 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.
“Unless they have a solid financial plan, 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.
Plan To Fail
You must set goals and have a plan.
We all face challenges at some point, and for the most part, we’ve created a small percentage of these pitfalls, debt included.
No matter how you secure debt in your name, you still need to find a way to pay it back.
Debt fatigue is when someone is in debt and can’t pay it back, so they do the natural thing: give up.
They give up, and they keep finding ways to create more debt.
Actions include applying for more credit cards until the lenders feel you are over-extended or are faced with bankruptcy or other means to reduce that debt.
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 deciding you’d rather not.
Start with a budget, track your expenses, and live within your means.
It 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 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 do either, do the math.
Find out just how much that debt will cost you and think about what would happen if interest rates went up.
Could you handle it financially?
Healthy Debt vs. Unhealthy Debt
That type of debt above is scary for many people, but it may take on a different role for others, especially when that debt makes them money.
You have to spend money to make money, as the saying goes.
A fan emailed me a few weeks back, wanting me to discuss why debt could be good rather than always being labelled as bad.
I agree that debt could be good, 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 or get excited chatting about how much debt they hold.
Instead, we hear how people are excited that they are debt free.
Good Debt Is Healthy Debt
Is there a 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 healthy to have in your back pocket.
If you have no career after spending $60,000 in University, how healthy is that debt then?
Debt is debt in my eyes, and although you are investing in yourself, if nothing comes of it, you are back at square one.
Just know what you are getting into, and don’t be fooled that it will go away fast.
School Loans Are Debt
If you have OSAP, it takes time to pay them back, depending on how much you can afford to put down 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 than you can handle and no money to pull yourself out.
I know that everyone has their own ideals regarding having debt and whether it’s healthy or not, but I believe it’s personal.
We can’t judge 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.
Learn How Others Pay Off Debt
You might find someone is happy as a horse with a $100,000 debt and causing him/her no stress, and they don’t mind paying interest on their debt.
They only care about living daily, enjoying life, and hoping that where the debt sits 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, which bothered him and put a dent in the family finances.
He 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 A 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 however we wish without worrying that we still have a mortgage and 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 how you look.
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 they said the same thing in the USA.
Never say never, right?
Having Debt For The Right Reasons
Others feel comfortable holding mortgage debt and investing every penny they’ve got in hopes of grand returns.
That’s fine 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).
Downside Of Risk
The issues may creep up if the financial road they envisioned fails.
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, you might not want to invest it in something volatile in the markets.
Then again, that market might rise and make you happier than ever.
In the end… it’s called “risk.”
Discussion: Do you think there is such a thing as healthy debt?
Please leave me your comments below.
If you don’t know, I have a second Facebook page called The Free Recipe Depot, where I share recipes from other Foodie Bloggers worldwide.
Once a week, I pick one recipe submitted as my Top Recipe of the week.
This week I picked a summer salad for everyone who loves salads during the hot weather.
Check out this Lemon Basil Pasta made from the foodie blog An Affair of the Heart.
I love everything to do with basil, and our basil is growing faster than ever this year.
Weekly CBB Posts
If you missed any CBB posts from the week, here is the list of posts you can catch up on reading.
- How spending money requires time: Our June Budget Update.
- Should grocery stores bother having a garden centre?
- 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 by enjoying our beautiful country!
A blog post I enjoyed
- RIF’s How they work and tax planning– The Blunt Bean Counter
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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