Ever wondered what the 'Average Canadian Household Debt' really means?  Do you think you belong to the average of this group or are you in more debt?  This week's blog will shed some light on this topic.

The Debt-to-Income Ratio

The Debt to Income ratio is probably the most important factor in determining how much in debt you really are.  In Canada, we get your Debt to Income Ratio by adding all the debt you may have including mortgage and credit cards and then divide it by the total earnings at the moment of calculation, minus taxes. Here’s an example:

Your total debt is $80,000 which includes your credit cards, mortgage, remaining student loans and credit lines.  Your total income after tax this year is $60,000.

$80,000/$60,000 x 100

Your debt to income ratio is 133%.

The average rate of debt in Canada is 152%. This means that you are under the Canadian Average.

What does this mean?

Based on the country’s average, it is obvious that most people in the country are in debt. However, the type of debts that you have greatly affects how well you’re doing financially. If the ratio is significantly high due to a recent mortgage or numerous mortgages because you have investment properties, there is no need to worry as mortgages are a type of long term investment. However, if your debt is mostly based on your credit card debts, then there is cause to be worried.

So when does the debt start to become a burden?

For most people, being in debt is a means to an end, like purchasing a car, home or condo.  The objective is to be able to comfortably meet your monthly payment obligations within your budgets.  Typically, the moment your debt becomes a burden is when you lose your ability to make full payments on time.

Is begin in debt a huge issue in your life? Are you constantly worried about making your next payments on time? If this is how you feel, then you may be in financial distress and need to deal with this issue soon. Create a budget, focus on paying off some debt or consolidate some debt.  If you cannot do it on your own, contact a professional credit counselor, as many times, these services are offered free of charge.  Do not wait until your situation is dire before making a change.