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High Canadian Debt not as Problematic as Previously Believed
Canada’s debt to income ratio is high, 164% as of the end of 2013. However this may not be as bad as we believe.
The financial crisis in the US was largely caused by people being issued debt they could not afford to pay. Currently, though Canadians have large debt loads, they are able to afford to pay it off.
This assertion is supported by the statistics. Delinquency rates on personal debt, credit and credit cards are low and falling. The number of mortgages in default or arrears is also low. The debt service ratio, which measures the percentage of disposable income going towards paying interest on debt is at the lowest since records started in 1990, only 7.1%.
There is a worry that debt is only currently affordable because of the low interest rates being provided by the Bank of Canada. Once interest rates begin to rise the affordability of debt will decrease and Canada will struggle with its high debt load. However experts believe that the Bank of Canada is keenly aware of the current financial situation and the factors that will be affecting the economy in the future and are unlikely to rashly raise the interest rates to pre-crisis levels.
Though this is good news it is important to remember that high debt levels can still have other consequences. Putting a larger part of your income towards paying off high debt levels can leave you with less money to save towards emergencies or retirement. High personal debt also leaves you vulnerable to financial changes. The job market is still unstable with more part time jobs being created than full time. Will you be able to make your payments if you get laid off and can only find part time work?
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