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Credit Cards,  Debt Management

Grim credit facts

Happy Halloween, my ghoulish friends!

My daughter will be out trick-or-treating for the first time tonight and was really looking forward to be going out dressed as a duck. Sadly our hunt for a duck costume has ended and she’ll be trolling the street for candy in a puppy costume instead. She was confident there would be plenty at the ‘Duck Costume Store’. We never found the store, but I promised her if she found one, I’d buy one for her. Perhaps someone next year will fill the obvious gap in the market. Hello?!

What are you dressing up as? Dressing up as someone else is fun and a big part of Halloween festivities. But using credit to look like someone else? Not so much! The truth is, many are living a lifestyle they simply can’t afford, masking the real problems.

I just came across this poll released just this week by RBC, finding nearly three-quarters of Canadians are in debt, who owe an average of nearly $16,000 on their credit cards, loans and personal lines of credit.

The devil is in the details

When I started to dig even further at the whole picture (I love stats!), some of the numbers were quite alarming. From 1990 to 2011 business bankruptcies declined 68.7%, while consumer bankruptcies jumped up 122%! That $16,000 debt average and rise in bankruptcy doesn’t seem all that ghastly when you think of the following:

  • high-interest credit cards have become the go-to method of payment (as reward credit cards have become increasingly popular), and
  • rock-bottom mortgage rates and rising home prices have helped drive demand for home equity lines of credit (HELOC)

At the same time, that average balance of personal debt hasn’t changed all that much year-over-year, and I think part of it has to do with people extending their debts. Credit card balance transfers that were supposed to be used to lower interest rates, so that debt can be paid off quicker, are often being used to avoid the debt for a little longer. Yes, 0% introductory offers are great, but most are just that – introductory. And I’m starting to hear more and more tapping into their home ‘equity’ to pay off their credit cards. Which is not a bad idea, in principle. But are we getting better at managing our debts, or just better at moving money around? And even worse, hiding them from our loved ones?

A study out of the UK issued last month, reported that the adults surveyed, were collectively hiding more than half a billion pounds of credit card debt from their partners. Yes, 625 million pounds! or $1.04 billion USD. And those are figures, people surveyed actually admitted to.

Here are some more startling and haunting statistics:

Spooky credit facts and figures

  • 71.6 million – the number of personal Canadian credit cards in circulation as of 2012, reflecting a 22.8% growth in the past 5 years. That’s approximately two credit cards for every man, woman and child in Canada! In 2012, there were approximately 487.9 million personal credit cards in circulation in the U.S.. (Source: Euromonitor International, Credit Card Transactions in Canada and US, January 2013). Talk about convenience!
  • $3,637 is the average Canadian credit card balance
  • 15 years, 5 months is the approximate amount of time it would take, to pay off a $3,637 credit card balance at the average credit card rate of 18.9%, if you only make the minimum payments (3%). And it will cost more than $3,681.73 just in interest – yip, more than double the principal amount.
  • 51% of Canadians are not paying their credit card balance in full at the end of each month, according to a 2012 TD Canada Trust poll, of which:
    • 40% said they were only making the minimum monthly payment and
    • 18% are using their credit card to supplement their income!!
  • $27,253 was the average U.S. graduate’s student loan debt in 2012, according to FICO (about the same in Canada)
  • $165.6 billion was the 2012 total outstanding balance of all HELOC’s in Canada in 2012, comprising more than 10% of overall consumer debt (mortgage and non-mortgage).  Last year, HELOC’s became the second biggest source of Canadian household debt. (Source: Euromonitor International, Consumer Lending in Canada, January 2013). ‘Secured’ credit doesn’t mean safe.

Advice for the living debt

Those are some pretty scary numbers. But if there’s one lesson to learn here, it’s that it’s important that we start to tackle our debt problems and stop hiding from them and stop hiding them from others.

Now that Halloween is upon us, we’re just heading into the big holiday stretch, which for many, can be an expensive time of year. So what better time than now, to review your own financial situation and clean up any financial skeletons in your closet.

Okay I know, I know. Enough with the cheese! Now I can finally take off this silly eyepatch. Writing with one eye is not as easy as it looks :).

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