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Debt/Credit question


Zowpeb

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According to this article most Canadians are more over-extended then Americans or British when it comes to credit and debt. This is actually something I've heard before. http://finance.sympatico.msn.ca/investing/...mentid=10622640

My questions to those who post, without anyone jumping into specifics of their finances, is:

Are you carrying a lot of debt outside the typical mortgage and car loan?

Do you know a lot of people who are over-extended?

If you are too young for mortgages then do you know a lot of young people who are carrying big credit card and student loan debt?

Most people I know are pretty secure and carry very little debt...so I'm just curious what the broader opinion and observation is...

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well, I'm in grad school in the US... so most everybody I know has crushing school loan debt.

As to Canadians being in more debt than Americans, I wonder if this might be mitigated by the strong anti-usury provisions in Canada. Credit card debt in this country can carry insane interest rates as maximum interest is defined by the law of the home state of the lender. As such, most credit cards used in the US are issued out of usury havens like Arizona, Delaware and I think South Dakota (might be off on that last one). Basically, there is no limit on what an American credit card can charge.

I have at least one friend who is on the edge because of credit card debt, although I think he is beginning to be able to reduce the principle.

Zowpeb, I'm going to guess that three factors contribute to your not knowing people with high debt loads.

1) self segregation. If you are a financially responsible person with a decent income, you are most likely to surround yourself with people like yourself.

2) People hide their finances. There are probably people you know who are having financial troubles but don't want to publicize the fact.

3) Ignorance. There are people who don't understand how much debt they are in. There is some intentional cognitive dissonance here. They might have a bunch of credit cards and refuse to total up the aggregate. They might be shifting card debt from credit card to credit card as a way to postpone the day of reckoning while allowing themselves to believe that as long as they can do that, they are ok. You discount mortgages from the equation, but you have to remember that a major issue here is that people overvalue their homes (even in the face of horrible comps around their neighbourhood) so they think that if they fall over the precipice on their home payments they can resell and get out of trouble when in reality they are upside down.

also, a lot of people in the US (i don't know about Canada) have bought into longer term mortgages, so they are not gaining that much equity on their housing with each payment.

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well, I'm in grad school in the US... so most everybody I know has crushing school loan debt.

As to Canadians being in more debt than Americans, I wonder if this might be mitigated by the strong anti-usury provisions in Canada. Credit card debt in this country can carry insane interest rates as maximum interest is defined by the law of the home state of the lender. As such, most credit cards used in the US are issued out of usury havens like Arizona, Delaware and I think South Dakota (might be off on that last one). Basically, there is no limit on what an American credit card can charge.

I have at least one friend who is on the edge because of credit card debt, although I think he is beginning to be able to reduce the principle.

Zowpeb, I'm going to guess that three factors contribute to your not knowing people with high debt loads.

1) self segregation. If you are a financially responsible person with a decent income, you are most likely to surround yourself with people like yourself.

2) People hide their finances. There are probably people you know who are having financial troubles but don't want to publicize the fact.

3) Ignorance. There are people who don't understand how much debt they are in. There is some intentional cognitive dissonance here. They might have a bunch of credit cards and refuse to total up the aggregate. They might be shifting card debt from credit card to credit card as a way to postpone the day of reckoning while allowing themselves to believe that as long as they can do that, they are ok. You discount mortgages from the equation, but you have to remember that a major issue here is that people overvalue their homes (even in the face of horrible comps around their neighbourhood) so they think that if they fall over the precipice on their home payments they can resell and get out of trouble when in reality they are upside down.

also, a lot of people in the US (i don't know about Canada) have bought into longer term mortgages, so they are not gaining that much equity on their housing with each payment.

I've thought of all of these things but I don't think it's the case overall...possibly the self-segregation as we all tend to run with friends similar to ourselves.

Most of the people I know are either holding a lot of home equity since home prices have risen so drastically in recent times or they rent. I know a couple people who have pretty bad debt to income ratios but other then being pay-cheque to pay-cheque they are fine...and let's face it, most of us would be in trouble financially without our jobs. LOL

Ignorance I can see being a major issue, amongst young people especially as they're still learning the pitfalls.

I used to carry a ridiculous debt load when I first graduated university...all of it low interest rate credit.

IIRC the highest credit card rate allowed in Canada is 28% which is typically from the department store cards, or on the interest free "don't pay for a year" deals (just don't go past that year...lol). I've never used either so I could be wrong...

I'm just not so certain that most Canadians are over-extended that bad...yes, demographically I think there are segments that are being nailed.

For example: the 18-28 year old group is probably struggling due to school debts, ignorance, financially uneducated, "getting started in life", etc...but that's been true for this demographic for decades and it doesn't represent most people...

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if you don't mind, how bad were your debts coming out of school (I assume you went to school in Canada)?

I was an out-of-state student at a public law school in the US and got a pretty good partial scholarship, but between that and my masters year at a private school, I am verging on six-figures of debt coming out of school. AFAIK, education costs in Canada don't get anywhere near what we have to deal with in the US and US tuition rates have been far outstripping inflation for many, many years now.

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My total debt level is about 50% of the value of my home equity. That's probably typical, in fact it might be low... but I'm not happy about it, probably because 3 years ago my debt level had just reached zero. At that moment, instead of being happy and mortgage-free in our decent-sized first home, I allowed myself to be talked into getting a bigger house. I'm no happier with a bigger house, and the person who talked me into it (hint: it wasn't either of my kids) is no happier either, because mortgage payments reduce disposable income. There's a lesson in there somewhere.

Not that I'm bitter.

Anyway, we're managing OK, but I definitely contributed to the upward trend in debt levels you see in the stats. It's possible I'm singularly responsible. :puke:

And no, I don't know anyone else who is overextended... but as mentioned, financial problems aren't often discussed openly. Except anonymously on hockey sites. ^_^

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well, I'm in grad school in the US... so most everybody I know has crushing school loan debt.

Ditto.

How's that for a boring 1,000th post!!

Edited by Mils
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if you don't mind, how bad were your debts coming out of school (I assume you went to school in Canada)?

I was an out-of-state student at a public law school in the US and got a pretty good partial scholarship, but between that and my masters year at a private school, I am verging on six-figures of debt coming out of school. AFAIK, education costs in Canada don't get anywhere near what we have to deal with in the US and US tuition rates have been far outstripping inflation for many, many years now.

Actually, I owed very little coming out of university. I was lucky enough to live in a city with 2 top universities in town...so I lived at home.

Tuition at the time was around $4-5K/year...this was about 10 years ago. I have to laugh at most current students who actually pay only marginally more then I did but still whine about school costs. For you US students, I feel sorry for you guys...it's gotta be a rough ride.

My debt came from being stupid. It wasn't ignorance or being financially uneducated (I went to school for Economics and Finance after all)...it was just being a stupid ass. I knew my income was going to rise quickly and I overspent. I was eventually covering about $1K per month paying off debt that was unrelated to my car or mortgage. Fortunately, other then the car and mortgage, I'm debt free now...took me about 2.5 years to pay off a $7K credit card debt, $9K line of credit debt and $7K loan. Most of that money was spent partying, travelling, and just generally living beyond my means...though I must say I was sorely underpaid the first 2 years out of school. Of course, my stupidity extended into my mid-twenties...I don't know anyone over 30 who is carrying debt like that (mortgage/vehicles excluded) and even I had managed to get myself free of debt before I turned 28. If I hadn't been so stupid early on I would probably have another $35-$45K in my home equity... :puke:

Mount Royale, owning a 50% equity in your home isn't bad depending on your age and what the carrying costs are relative to your income. I would guess that most people under the age of 45 are still paying big chunks of their home off...if the average person is paying off their house for, say, 20 years and buys when they are 30...and considering the interest being paid in the early stages...you should be fine. Really, even if you owed into your retirement years you could always sell it for a lot, downgrade to a smaller place and pocket the difference for your retirement. The only time I see owning as a bad investment is when you live in a big expensive city and the downpayments need to be soo big that your better off investing them then putting them in a home.

IIRC the average Canadian spends about 22% of their income on their home costs...so for a lot of people to be overextended they would really have to be carrying a lot of debt.

I also think a lot of people get locked into the idea of investing rather then paying down debt...a lot of the time paying down high interest debt actually pays more then investing.

Edited by Zowpeb
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I wasn't eligible for any school loan because my father's salary is too high. The good thing : my father salary was paying for my school. I moved out of parents house during my final year of school and was able to pay for my appartment by working 20 hours per week with 20 hours of class as well.

Now that i'm done with school ( 2 years ago), I'm trying to live normally while paying : 900$ of habs tickets (last season, it took me 5 months to get rid of), 4 new electros 1.6K (still paying 100$/month, 400$ left) and 1K scuba diving equipment (still paying 400$ left).

I just got a new job with a significant raise (7-8K$) so it could be done faster than expected...

My gf has 22K in school debt. She did a technical graphism program to finally forgive that and study to become municipal sports/loisirs employee.

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Now that i'm done with school ( 2 years ago), I'm trying to live normally while paying : 900$ of habs tickets (last season, it took me 5 months to get rid of), 4 new electros 1.6K (still paying 100$/month, 400$ left) and 1K scuba diving equipment (still paying 400$ left).

electros?

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