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Financial advisers from Sudbury, Ont., say they have seen a steep increase in credit card debt over the last year and a half that aligns with national trends.
Last week, a report by Equifax Canada found that credit card balances in Canada rose to their highest level in the latest quarter, since the final quarter of 2019. The report said there was a 6.4 per cent increase in credit balances between the first and second quarters of 2022.
John Cockburn, a financial empowerment co-ordinator with the Sudbury Community Service Centre, said he has seen that greater reliance on credit play out with his clients.
“More and more people are relying on their credit cards to supplement their income and purchase things that otherwise they wouldn’t be able to afford,” he said.
“I kind of attribute that to the rise of inflation with the not rise of minimum wage, or increase in wages where they’re working.”
Cockburn said many of his clients have credit card debt in the range of $22,000 to $25,000.
People in their mid-40s to mid-50s carry the most debt on average, he said, because they have had more time, and life circumstances, to accrue debt.
Cockburn said a common mistake people make with credit cards is they just pay the minimum payment each month, but don’t think about the effect high interest rates can have over the long term.
As an example, he said a credit card with $2,000 in debt, and a 28 per cent interest rate, would take 30 years to pay off with minimum payments. In that time, the person will have paid back more than $9,000 due to the high interest rate.
Cockburn said there are only two ways for people to balance their budgets: spending less, or making more money.
For most people, he said, spending less would be the more realistic solution to bring debt under control.
“My philosophy is look at all the forms of debt that you have, figure out which one is charging the most interest and focus on getting rid of that one first,” Cockburn said.
People will talk more freely about sex than they will about their money.– Linda Cartier, registered financial planner
Linda Cartier, a registered financial planner with Financial Decisions in Sudbury, said a lot of people decided to treat themselves with online shopping sprees during the pandemic to improve how they feel about their lives.
“And all of that comes back to roost with having extra debt,” she said.
Cartier said recent increases in inflation, and the cost of living, have compounded the debt many people already had.
Like Cockburn, Cartier said people should focus on paying down their debt at the highest interest rates first.
“When you’re paying down debt, you are earning whatever that interest rate is, tax free,” she said. “So that’s the best rate of return you can possibly get.”
Cartier said a lot of people are “flying by the seat of their pants” when it comes to personal finances because they didn’t learn best practices in school and don’t talk about money with their families.
“People will talk more freely about sex than they will about their money.”
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