May 27, 2017

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Forever in their debt? You don't have to be

New survey indicates Manitobans may be hitting their financial breaking point

Chicago Tribune / TNS</p>

Chicago Tribune / TNS

Maria shares two things in common with a lot Manitobans.

One: She has battled rising debt loads to her breaking point.

Two: Maria would rather people not know about it, particularly family.

"I did feel ashamed of myself," says the Winnipeg mom, who graduated from post-secondary studies with debt. With all of life’s other costs, she found she just couldn’t get rid of the balance owing. In fact, it was headed in the other direction — $17,000 and growing.

Of course, Maria is not alone in this respect. A recent Ipsos Reid survey found one in three Manitobans has gone on a debt-spending spree because of low interest rates.

In other words, they’ve borrowed more than they would have otherwise. Furthermore, 43 per cent are concerned a rise in interest rates would negatively affect their ability to make debt payments. Even more concerning, about three in 10 indicate a rate hike would push them toward bankruptcy.

"That’s a whole lot of people teetering on the edge," says licensed insolvency trustee Gord Neudorf of MNP, which sponsored the survey.

Yet many people are reluctant to do much about their debt problems, he adds, until they cannot make payments any more.

Nor are they likely to want to talk about it.

That brings us back to Maria and what she shares in common with countless others. They find their situation embarrassing and would rather not have everyone know about their business.

That’s why Maria chose not to use her real name, after some thoughtful deliberation with her spouse.

"People are so ashamed of debt," says Sandra Fry, a debt counsellor with Credit Counselling Society in Winnipeg, a not-for-profit that provides advice and assistance to indebted consumers. "I have so few clients that want to talk about it at all."

We may not be shouting it from mountaintops (we can’t; it’s Manitoba) but a growing number of us are struggling with debt.

More broadly, Canadians are an indebted lot. Our debt-to-income ratio — approaching $1.70 of debt for every dollar we earn — continues to hit new highs. Bankruptcies and consumer proposals are jumping by double-digit percentage points annually, according to the Office of the Superintendent of Bankruptcy of Canada.

While it’s easy to chalk it up to a collective, blasé approach to money management, other factors are helping us dig our financial graves. Incomes have remained relatively stagnant over the past decade and more, according to data from the Canadian Centre for Policy Alternatives. At the same time, lenders have become ever more creative, aggressive and laissez-faire in offering credit. Almost everyone, for example, has a credit card. About 90 per cent of adult Canadians had a credit card in 2016, owning on average 2.2 cards, according to Canadian Bankers Association.

That’s not even accounting for the growing subprime loan industry — such as payday loans. According to the Financial Consumer Agency of Canada, the industry grew from serving two per cent of Canadians in 2009 to four per cent in 2014. All told, about two million Canadians use this exorbitantly high-interest credit service annually, Canadian Payday Loan Association figures indicate.

But low interest rates on mortgage, lines of credit and car loans have probably stoked financial house fires the most. Ironically, this is partly due to the financial industry blowing its own face off every few years with a self-induced stock market crash. In turn, central bankers have to lower rates so consumers can spend enough to reanimate the economy to rise from the ashes, yet again.

"I like to say ‘debt is a growth industry,’" says John Silver, executive director of Community Financial Counselling Services (CFCS), a United Way-supported non-profit that provides debt counselling.

It’s not just the financial institutions making money hand over fist (or billions by the year) from lending.

Silver says many accounting firms seek to reap revenues by expanding their bankruptcy services as a growing number of middle- and high-income earners get in over their heads.

"They’re advertising for it," he says. "They’re actively seeking clients who have debt because there is money to be made."

After all, trustees get a portion of the money paid back to creditors as their fee for helping bankrupt individuals.

As the stats indicate, demand is high. For many, bankruptcy or consumer proposals (bankruptcy’s little brother) are often the only options.

The fastest-growing segment? It is retirees, particularly those in early senior years.

"These are often new retirees that have an income drop as they enter retirement with a debt load they could service while working; but they can’t do it on a reduced retirement income," Neudorf says.

The debt problem, however, affects every income level, young and old.

At CFCS, the majority of clients now are low-income individuals who often are not good candidates for bankruptcies and consumer proposals because they live on income assistance or pensions — both exempt incomes from bankruptcy proceedings.

"People who have the resources to repay their debt, or have enough secured debt, are going to gravitate to where they are seeing all this advertising for bankruptcy," Silver says.

Those are the bankruptcy trustee services.

These bankrupt individuals end up paying back roughly one-quarter of what they owe. Their retirement savings remain untouched, and the big downside is they can’t get credit for seven years, or five years if it’s a consumer proposal.

"Other people are judgment-proof because you can’t go after someone’s EIA or someone’s pension," Silver says, adding these individuals often have no means to pay off any debt because they have no surplus money.

Still, many want to pay back what they owe. CFCS and Credit Counselling Society offer debt-management programs where the creditors eliminate interest on the debt as long as it is repaid in full over an agreed-upon period of time. That’s the route taken by Maria, a civil servant.

"I entered a debt-consolidation program with Credit Counselling Society in August of 2014," she says. "The reason I entered this program was to take control of my debt and pay my creditors off."

The program eliminated her interest payments and set out a repayment schedule for the next four years.

"But I paid it off in less than two years," she says.

Maria urges others facing seemingly insurmountable debt to consider doing the same.

"I felt triumphant."

Equally important, Maria no longer feels the crushing weight of debt’s emotional impact.

"I am no longer ashamed," she says.

Just don’t ask her to talk about it with family.

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