On a day – September 20 – when the U.S. Federal Reserve announced that it will continue to take an accommodative stance and hold its lending rate at 0.25 percent, and Canadian inflation numbers for August came in below market expectations, a key question for Canadian households is how they should best position themselves to weather a stubbornly slow recovery from the recession.
For many households, overextended by credit card balances and unsecured personal loans, consolidating multiple high interest credit facilities under a lower-interest, secured home equity line of credit may be a first step in repositioning household finances for a period of relatively slow economic growth.
The Vancouver Sun reports that 59% of respondents “would be in financial difficulty if their paycheque was delayed by a week,” according to a recent survey of workers by the Canadian Payroll Association. Meanwhile, a recently released report by Scotia Capital indicates that “Canadians are spending more than ever repaying debts, a fifth of our income on average.”
While personal bankruptcies are on the decline, credit and finance counselors are still “seeing a lot of people living paycheque-to-paycheque,” according toWendy Dupuis, one of the credit counselors cited in the Vancouver Sun article. She notes that if households “want to turn [their finances] around they need to look at their situation. They either have to cut expenses or increase their income so they can at least put some money aside for emergencies.”
Ms. Dupuis points to a 20 percent drop in the number of clients she is seeing as “a sign that the worst is over;” however, she notes that “(w)hile the number of bankruptcies is down, [her] clients are finding that banks and other creditors are taking a harder line with debts that are overdue.”
For homeowners with over-extended household balance sheets debt consolidation may help them out of an all-to-common fiscal trap. Consolidating higher-interest consumer loans and credit card balances under a secured home equity line of credit is one way of reducing the proportion of income paid out as interest, freeing up income to pay off principal and bolster savings.
