Can You Make Your Payments?

Recently there has been much talk among governments and economists about the household debt to disposable income level in both Canada and the USA. The latest numbers show that in the USA household debt is 147.2 per cent and in Canada it is slightly higher at 148.1 per cent. That means that for dollar earned the household is caring about a buck and a half of debt. So a 2 income family earning $65,000.00 a year would have debt of almost one hundred thousand dollars.

They go on to break this down saying it is not so bad when you look at good debt vs. bad debt, and when you look at what was purchased. One economist was pointing out that it is not so bad if you did not go out and buy speed boats or motorhomes but cars and house.

A lot of talk about how things are not so bad when you look at net worth which has been going up of late.

All those discussions are totally mute in my option. The only thing that matters is CAN YOU MAKE THE PAYMENTS? It doesn't matter if your net worth is high if you can't afford to make the payments.

The scary thing is a lot of people are right on the edge, they are making the payments but just barely. If anything was to happen to decrease income, like getting laid off or downsized or have to take a pay cut, or if the cost of debt / payments was to go up, then things would not be so good. The governor of the Bank of Canada recently warned that one of these days interest rates are going to be going up. They can't go any lower, and are only being kept this low to try to spar on business investment. His comments were “When the reckoning comes, it could be swift and brutal.”

So my advise, get out of debt and stay out of debt. Keep your payments as low as you can by not spending money on things you don't need and can't afford. With Christmas just around the corner it is extra critical that you keep an eye on what you spend.

Have a very Merry Christmas and a Happy New Year, but watch what you spend and put those credit cards away.

Cheap-O Economics.