Op-Ed: Accountant Jim McAvoy on why debt is so hard to manage Special

Posted Jun 26, 2013 by Jordan Hikin
Canadian households are in huge debt, not because of our appetite for consumer goods, but rather to meet living expenses. The result is that household debt in Canada has broken its own record, now ringing up over $1.5 trillion.
Image of Vancouver
Image of Vancouver
Jim McAvoy, accountant and CGA, says that he sees a lot of problems surrounding the issue of debt. “With the cost of food, housing and transportation going nowhere but up, and annual salaries stagnant or sluggish, more and more Canadians have assumed debt in order to survive. And once in debt to get by, it’s hard to get out.”
A recent CGA-Canada report, confirms that 50 percent of our debt is for the expenses needed for everyday life. Canadians hardest hit are senior citizens, single-parent families, and those who earn less than 50 K annually.
Household debt-to-income ratio rose in 2011 and it’s at its worst on the west coast. BC has the highest ‘debt service’ ratio, with about 10 percent of our disposable income going to paying interest on debts. “Some people feel that they give much more of their income to debt,” McAvoy notes.
Canadians are carrying debt into retirement, with roughly a third of retired Canadians carrying an average of $60,000 in debt. The pre-retirement demographic has one of the highest levels of new debt, as well as insolvency filings. Many of these baby boomers sustained crushing losses during the recession: a lot of retirement savings were wiped out and that puts the pre-retirement demographic under a terrific strain.
Those who are seriously tackling their debt are finding it nearly impossible to put a dent in it. For some, a monthly credit card payment puts them one step ahead until the interest rate is charged. That puts them two steps back. A recent PricewaterhouseCoopers survey, reports that of the 63 percent of respondents committed to reducing personal debt, only 23 percent of them had much success. In fact, a quarter of respondents admit complete inability to reduce their debt at all. The same survey found that more than half the respondents admit becoming “comfortable” with their debt. We’re getting used to debt: a reality of modern life.
Also, thousands of Canadians are filing for personal bankruptcy, or filing ‘consumer proposals’ asking creditors to modify terms of debt. More than 80 percent of bankruptcy filings were made by people who are employed. “It’s not as if people aren’t trying. They are. I see it every day,” says James McAvoy, Victoria and area CGA.