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5 reasons why Canadians are in debt

1. Credit card debt

Most Canadians have a credit card for convenience. However, this convenience can also cause financial problems for some people. Because credit cards are so easy to use when you don't have access to cash, people use them regularly without thinking about the financial consequences later on.

Purchases can quickly begin to pile up, and before you know it, you find yourself with significant credit card debt. Credit card debt is a particularly dangerous form of debt because of the high interest rates associated with it. While it may seem harmless to use your credit card from time to time, if you don't know how to pay it back regularly, it can quickly become an overwhelming source of debt.

2. Mortgages payable

Mortgage debt is another extremely common form of debt. If you want to buy your own home, you will most likely need to take out a mortgage. When you take out a mortgage, you borrow money from the bank to cover the cost of the house that you can't afford to pay outright.

You then draw up a payment schedule with the bank of your choice, in which you set the monthly payment amount and the length of time you have to repay the debt. As you can imagine, if your mortgage has a longer term, your monthly payments will be lower, whereas with a shorter term, they'll be higher.

When you set the terms of your mortgage, you're usually ensuring that you'll be able to meet your payment obligations in the future. However, people often encounter unforeseen circumstances that affect their ability to make their monthly payments.

3. Student debt

Another often unavoidable debt is student debt. Most individuals and families don't have the means to finance further education out of their own pockets, which means that most university students need some form of financial aid to complete their studies. When students finally finish their studies and start work, they usually already have a significant debt.

4. Lack of knowledge

Financial education is not something that is frequently taught in schools, so many people enter the real world without a good understanding of personal finance and essential life skills such as budgeting.

Financial responsibility isn't necessarily an innate skill that everyone possesses, so people who haven't had a course in financial management are more likely to find themselves in debt.

For example, a basic knowledge and understanding of your credit rating is essential to your financial stability. However, if you don't learn how your spending habits can affect your credit rating, your credit score may fall, which could hinder your ability to borrow money in the future.

5. Lack of savings

Saving is easier said than done. The lack of savings to fall back on in the event of financial difficulties is one of the main reasons why people end up in debt. Financial responsibilities you hadn't anticipated, such as medical bills or car repairs, can be a major blow if you have no savings.

If you have savings, you can draw on them to meet unexpected expenses. On the other hand, if you don't have these savings, you'll have no choice but to take out a loan and pay interest.

Expert advice on avoiding debt

1. Budget

Budgeting is the best way to avoid getting into debt. If you know exactly how much money you have and how much you spend on rent and bills, you can calculate how much money you have left for food, activities and how much you can put aside. Having a budget that you save and modify will enable you to keep constant track of your spending.

2. Find out more

As we pointed out earlier, lack of financial knowledge is one of the main reasons why people end up in debt. However, if you're proactive and take matters into your own hands, you can educate yourself to avoid falling into this trap.

Simply looking online and educating yourself or taking a basic finance course can help you better understand how money works, what contingencies you should put in place and how to be more financially responsible.

3. Talk to someone

If you're having financial problems, the last thing you want to do is tell anyone. Yet it's actually the best thing you can do. Okay, you might not want to talk to your close friends or family, but there are other people you can talk to.

Talking to a licensed insolvency trustee is the best thing you can do if your financial situation is starting to worry you. Whether you're experiencing new financial problems or contemplating bankruptcy, an insolvency trustee is there to analyze your financial situation, provide professional advice and explore different solutions with you.

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