Low Interest Rates Create an Economic Mirage

Despite louder and louder warnings from some of the country’s top financial experts, Canadian households continue to leverage themselves at an alarming rate. According to Moody’s, the debt burden of the average Canadian household has grown by about 1.5 percent per quarter over the past two years. That translates to an annualized growth rate of 6 percent.

Moody’s argues that historically low interest rates are the primary culprit for the recent increase in household leverage. In a recent report, the respected credit-rating firm expressed skepticism that Canadian households would change their borrowing habits until rates rose significantly.

Many of Canada’s top financial experts believe that such a rise will come too late to prevent an economic catastrophe. Mark Carney, the current head of the Bank of Canada, recently went public with a passionate plea for fiscal restraint.

His concerns may be prescient. During the past decade, the average Canadian household’s debt load increased by 154 percent. By comparison, average household income increased by just 54 percent during the same time frame.

At the moment, elevated levels of household debt may actually be good for Canada’s economy. 70 percent of the country’s aggregate consumer debt is mortgage-related and supports a still-thriving housing market in many major Canadian cities.

As a result, rising home values have spurred breakneck growth in the value of the nation’s home equity loans. The value of outstanding Canadian home equity loans has quadrupled since 2000, and these credit facilities now represent a major source of income for many of the nation’s homeowners. In fact, the average Canadian now derives nearly 10 percent of their total disposable income from home equity lines of credit.

The United States experienced a similar period of easy credit during the mid-2000s. It created tremendous wealth and millions of jobs while it lasted, fueling a construction boom that saw the development of entirely new suburban communities as well as major urban mixed-use projects that remain popular today.

Of course, the euphoria came to an abrupt end in 2007 as the country plunged into a deep recession. The collapse of the U.S. housing market and the subsequent rash of consumer defaults nearly took down the global economy. As it is, the world still has yet to fully recover from the carnage.

Finance Minister Jim Flaherty worries that the same sequence of events may yet derail the Canadian economy. If interest rates rise or banks decide to tighten their lending standards, millions of borrowers across Canada may be thrown into default. The ensuing collapse of the job market would only compound the problem.

For many Canadian households struggling under severe burdens of debt, this grim future has already arrived. In many parts of the country, stagnant wage growth has forced millions of middle-class homeowners to use credit cards and other unsecured credit facilities to purchase basic necessities.

While their home equity lines of credit may be keeping them afloat for now, these folks are just one interest-rate spike or pink slip away from insolvency. An economic downturn would likely force them into bankruptcy. In fact, thousands of Canadians have already given up on servicing their debts and consigned themselves to a long, hard slog through the bankruptcy process.

Unfortunately, many Canadians know little about the debt relief alternative known as debt settlement. Compared to bankruptcy, this process often saves consumers thousands of dollars and years of crippled credit.

Debt settlement programs often conclude in just 12 months and may reduce their participants’ total debt burdens by 40 to 60 percent. Unlike popular but expensive debt consolidation loans, debt settlement involves direct negotiations with creditors and attacks the principal balances on outstanding debts.

Maple Leaf Debt Helpers, one of Canada’s premier debt settlement agencies, offers its services at surprisingly affordable rates. To learn more about the power of debt settlement, call toll-free or fill out the no-obligation online form today.

877-710-DEBT

How To Get Out Of Debt

From Newfoundland to Alberta, you’re just one of the millions of Canadians who have effectively borrowed from their future selves to pay for basic necessities in the here and now. Many see no problem with doing this. After all, the past is full of examples of folks who have worked their way out of serious personal debt problems through determination and discipline.

However, you shouldn’t necessarily expect your case to follow suit. Every debt situation is different: If you have poor credit, high credit card balances, and crushing interest rates that seem to negate your monthly payments, you may not be able to escape from debt by yourself.

Fortunately, you don’t have to learn how to consolidate your debt on your own. Once you’ve made the decision to pay off your obligations and get your finances back on track, you’ll have several options.

There are four major types of credit relief: debt consolidation loans, bankruptcy, credit counseling and debt settlement. Depending on the mix of debts that you’ve built for yourself, any one of these options may prove to be the answer to your financial puzzle.

From Quebec to British Columbia, debt consolidation loans are Canadians’ most popular debt relief choice. When you take out a debt consolidation loan, you’re making a bargain: Since the loan’s principal is usually large enough to cover your existing obligations in full, your lender will expect you to pay off your current creditors immediately upon receipt of the loan. Once that’s done, you’ll be responsible for making a single monthly payment to your debt consolidation lender until you’ve paid off the new loan in full.

It’s helpful to think of your debt consolidation loan as a refinancing tool. If you’re barely able to afford the monthly payments on your existing lines of credit, your balances are probably accruing interest at unseemly rates. If you’ve missed payments in the past, you may be on the hook for penalty interest, late fees and other charges as well.

Debt consolidation loans may lower your interest rate significantly, especially if you’re in the penalty. This can translate into big savings: Reducing the 20 percent effective interest rate on a balance of $10,000 to 10 percent will save you $1,000 per year. As debt consolidation loans typically take five years or more to repay in full, your total savings may exceed $5,000.

These products come with some drawbacks. For one, your debt consolidation lender can’t reduce the principal amount that you owe your existing creditors: If you owed $10,000 before you took out your loan, you’ll owe $10,000 after you take out your loan. They can also be hard to come by: If your credit score is below average, debt consolidation lenders will either turn you away outright or ask you to pay through the nose for your cash.

If you’ve tried using a debt consolidation loan to solve your financial problems and still can’t figure out how to consolidate your debt, you may need to consider filing for bankruptcy. If you do, your creditors will stop harassing you almost immediately, you’ll see most or all of your debts forgiven, and you’ll be able to start from scratch with a tighter budget.

However, bankruptcy can cause serious headaches. Unless you don’t own much, you’ll exit the process with fewer assets and a rock-bottom credit score. It can take years to rebuild your financial reputation after bankruptcy, so it’s best to exhaust all other options before taking the plunge.

Credit counseling should be one of those options. While your credit counselor can’t reduce the principal on your outstanding loans, they can negotiate sharp reductions in your annual interest rates. They have a vested interest in keeping you solvent: Since they receive much of their funding from banks and credit card companies, they don’t want you to default on your loans and rob their benefactors of thousands of dollars.

Unfortunately, a successful credit counseling program can take five to seven years to complete. If you’re wondering how to get out of debt sooner than that, look to debt settlement. Depending on the size of your debts and your creditors’ willingness to negotiate, this process typically wraps up in 12 to 48 months.

What’s more, debt settlement providers make it their mission to negotiate actual reductions in your outstanding principal balances. The exact amount that you’ll save depends in large part on your creditors’ receptiveness to the process, but it’s not unusual for debt settlement to slash 40 to 60 percent from a typical debt load.

While there’s no magic debt-relief bullet, these four proven methods can help you escape your creditors and get your life back on track. Weigh your options carefully and make the call that best suits your needs.

877-710-DEBT