The Debt Poll
Posted by Gail | Filed under Debt Traps
Not too long ago I ran a poll about how much debt y’all are carrying. I found the results very interesting.
14% of people who responded to the poll are completely debt free. Are you surprised at the number? Did you think it would be higher or lower?
The last survey of this kind came in 2008 when the Certified General Accountants Association of Canada conducted a consumer survey on household debt and consumption in Canada. They found that Household debt is at an all-time high reaching $1.3 trillion in 2008 and the escalation of debt is primarily caused by consumption motives rather than asset accumulation.
Looking at the kinds of debt we’re currently carrying, this seems to still be the case, despite the shake-up in the economy and the lessons we should have learned. Maybe that’s because according to the CGA poll 79% of indebted Canadians are still confident that they can either manage their debt well or take on more debt load. Wow! I don’t know what else to say… just Wow!
According to my survey:
- 6% of people have a buy now pay later
- 9% are carrying a balance on a department store credit card
- 42% are carrying a balance on a Visa or MasterCard
So people still think it’s okay to spend money they haven’t yet earned on STUFF.
In a previous poll I asked you to complete the statement “As soon as your credit card bill comes in you…” Here’s what you said:
- 3% Hide the bill in a drawer…. I can’t afford to make a payment
- 6% Pay the minimum amount
- 32% Pay more than the minimum but not the balance in full
- 53% Pay the balance in full from my bank account
- 5% I don’t have a credit card.
- 1% Make a payment from my line of credit
Speaking of lines of credit, according to my debt poll, 38% say that you are carrying a balance on your line(s) of credit. You better get busy paying those suckers off since rising interest rates will take a bigger bite out of your budgets pretty soon. And if you’re one of the delusional dopes who still considers a PLC to be an emergency fund, its time to wake up and smell the coffee.
On the fringes using what I refer to as “debt of last resort” – pay advance loans – I report with mixed feelings that only 2 people voted and so the percentage was below 1% and didn’t rank. I’m happy that the number is so low. I’m sad that these financial pariahs still exist and have their hooks in folks. If you’re in this mix, getting their hooks out of you must be your first priority, and you must do whatever it takes.
Some of the feedback came as no surprise at all: 57% of folks have a mortgage and 34% have a vehicle loan. 4% also have “another” vehicle loan… that’d put a strain on your budget, eh? 16% of folks are still into their overdraft — hey people, that’s a loan too! — and 8% have a consolidation loan. 17% have government student loans and 7% have student loans from a lender.
There are a few investors among the people who responded to my poll and some of them are doing their investing with borrowed money:
- 1% have a margin account
- 4% have an investment loan
I wonder if the people with RRSP loans counted themselves among these, or simply didn’t count their RRSP loans because they had an off-setting asset.
August 2, 2010 at 6:53 am
Hello Gail,
We are still debt free (one of the 14%) we did at one time have an RRSP loan and we did consider that debt. I don’t think there is any other way to consider something like that borrowing to invest is still borrowing.
For the credit card bill, we never look at the paper bill. I’ve figured out that the bill for us is printed on the 3rd. I pay my credit card off online on the 2nd or earlier so the bill we get always says zero balance.
I’d love to see you re-issue the same poll in a year’s time and just see if the numbers among your readers changes for the better. The magic jars really work.
regards,
Jason
August 2, 2010 at 7:21 am
Hi Gail,
Thank the Lord, we are ones with no consumer debt and it has been the savings grace for us.
Funny enough, I was just telling my Mom yesterday that I got charged $5 last month in interest on a credit card while I was waiting for an escrow to close, so this month when I saw it, I paid the card off. Ain’t gonna get my $5 again!
As always, love your show and hope all is well with you.
Harry Martin
San Diego CA USA
August 2, 2010 at 7:22 am
Debt-free and on my way to an emergency fund worth six months of expenses without any other income support. Want to see it go to 9 months eventually. No PLC – got rid of that when they kept raising the interest rate and when they wanted to charge me for the privilege of having a PLC if I didn’t use it. Credit cards are paid off when the bills come in. There is one air miles card that all purchases go on (food, etc), with no annual fee. We use the rewards to purchase gifts for people for christmas. A second card has a 1% cashback which we use only at Costco and it helps pay for the Costco membership. Both of course are paid off as soon as the bills come in. I have a $4k float in my chequing account (sad they don’t pay interest on it), and because of that my monthly bank fee is waived – which saves almost $15 a month. It’s also a good cushion for the odd emergency that pops up so I don’t need to dip into the real emergency fund. I am determined not to give the banks a penny if I can help it – they got enough from me when I was foolish and in debt up to my eyeballs!
August 2, 2010 at 8:43 am
I’ve a question about what Jason does (paying off his credit card before the statement date). I’ve heard that this is much like not using the credit card as far as establishing a credit rating goes. In other words, you should wait to have a balance and then pay it (the next day, if you like) rather than pay it before the statement date so that it shows you’re charging items to the card and paying them off responsibly. Anybody know if that’s true?
August 2, 2010 at 8:55 am
Tracy, I’m going to talk about this on Wednesday. Come back and read my rant about the Credit Scoring system!
August 2, 2010 at 9:01 am
Tracy, I heard the same thing. I choose to pay my credit card 3-4 business days before it’s due, since I woulc rather get that extra interest (mere pennies, I know) than give the money to the credit card sooner than I have to! When I get the bill, I go online, figure out my portion of the credit card and the joint expense portion of the bill, and then go into the bank accounts and schedule the payments. Our joint expense bill gets scheduled 5 days before it’s due, since that account always takes an extra day to actually leave the bank account.
In terms of debt, I am 100% debt free (no consumer debt since 2008, no student loan debt since early this year), but do plan to take on the debt of a home in approximately 5 years, provided the current status quo remains.
By having no debt, I am able to save for this future home, save for retirement, and when things come up (such as the wedding in Cuba that I’ve been invited to), I can easily accomodate the change without worrying about what thing won’t get paid. I need to make a deposit at the end of this month for the March wedding, and I have no problems – I have money in my “fun money” account, so I don’t have to reduce my savings this month with the deposit, but when it comes time to pay the remainder, I simply skip putting 40% of my pay to savings. Easy!
August 2, 2010 at 9:14 am
now that our LOC Is paid off, the next step is our cc’s-we have about 2k on them. after paying off 14k on the LOC, this seems very doable in a short period of time, and then we will be offically consumer debt free. what i already know, is that by paying off our LOC and having ‘planned spending’ accounts set up, our budget suddenly has way more wiggle room for us to save to pursue the dreams and ‘things’ that are more important to us-RESP’s for our kids, a bigger home in 3 years (or so), a fatter emergency fund. what is frustrating with debt, is that while you are paying it off, you are unable to fully put your money towards these more important goals. we know that now. and i feel very positive about the future.
thanks Gail
August 2, 2010 at 10:05 am
All we owe is a mortgage, and I’m happy to say that as of this month, we’ve increased our monthly mortgage payment by $200, effectively shaving off almost 4 years from our amortization.
A year ago my answer to the poll would have been different – a mortgage, a LOC, a balance on Mastercard and a dying vehicle that would soon need replacing… we were in rough shape before Gail.
August 2, 2010 at 10:15 am
I, too, am one of the fourteen percent who is debt free. One reason I pay everything in full is I don’t want to pay interest on anything. About twelve years ago I was hit by a van that ran a red light – no major injuries to me but my poor car was a write-off. Fortunately I had plenty in my car account and, with what the insurance company paid, I could buy a new car. My concern was that I had used up all the car savings and it would take a while to rebuild. I went to the bank and asked to get a line of credit incase something should happen before I again had enough for a new car. I never used the LOC because I never had a car emergency. Then I got a letter from the bank telling me that because I wasn’t using it I would have to pay $35 a year. I called to question this and said I didn’t think I should have to pay for not having an emergency. They wouldn’t budge so I canceled the LOC. I was told quite rudely that I would never get the same interest rate again. Since then I have bought a new car, paid for in full, and have started building up the car account again although I’m hoping to keep the present car for anpther eight to ten years.
August 2, 2010 at 10:16 am
Also, I am surprised by the 14% debt-free. I thought the number would be lower… I’d be curious to hear from those 14%, to learn if they have paid off their mortgage or if they haven’t purchased a home yet but plan to someday have a mortgage.
August 2, 2010 at 11:11 am
Sadly, debt is too much a part of every day life these days. My grandparents never used credit, and my parents used credit wisely. Hubby and I are using credit wisely, but I know so, so many people who aren’t.
On a side note regarding payday loan places… I know how much you abhor them Gail. While driving the other day I saw one place that was advertising a promo on prepaid credit cards so that people could play poker online. Good lord !
August 2, 2010 at 11:19 am
There are a lot of people I know who use their overdraft as though it were their own money. “We live in overdraft’ one couple says. It sounds like a bad habit I could easily slip into so I don’t have one of those accounts that permit it.
While I am not yet debt free in the poll, I am in a lot fewer categories than I would have been two years ago BG (Before Gail). thanks Gail.
August 2, 2010 at 11:31 am
I’m the freak who was one of the very few people making up the 1% of respondents with margin accounts, yet I have $51,000 in credit card debt (much of it at high rates) and an income that is barely higher than that per year. How do we make ends meet? We have a paid-for car, we shop carefully, and most of our money goes out toward living expenses and bills. Payday loans? Never. Overdraft? Never. Bounced checks? Never. I manage the money down the last ugly penny, daily.
I owe $14,000 on my $47,000 worth of stocks (in other words, the value of my stocks after repayment of margin which I could do at any second, is $33,000).
Why do I carry so much credit card debt when I have some assets? I don’t want to part with my assets, that’s why. The debt I’m carrying is VERY costly, and I know that all too well.
Not exactly Gail’s poster child, I know… But Gail – we LOVE your show – we’re addicted!
August 2, 2010 at 11:46 am
@Mrs. T
I paid of my mortgage by making large lump payments when permitted and by increasing the monthly payments which I realized were too low. Why should the bank get any more of my hard-earned money than necessary?
Without a mortgage there are more funds available for travel and savings.
August 2, 2010 at 11:47 am
I have a margin account (I dip into it occasionally to buy some non-registered investments, and pay it off quickly… last month it cost me 1.19$ in interest, tax-deductible, for example). I also have an investment loan, which I took out at the worst possible moment, on the recommendation of a mutual funds salesman, before I educated myself (I don’t have a problem with the concept of an investment loan, but with the choice of investments… but that’s another story). I’ll probably get rid of this one within the year, when the time is right. But that’s it. No CC, no LOC, no car loan (paid off a new car in 1.5 years). I don’t have a mortgage because I prefer apartment life. I’ve had a house in the past, but discovered I don’t enjoy “house stuff”, the decorating, gardening, renos, etc… I prefer living 8 minutes walk from my work and calling the super when stuff breaks. I pay rent and invest the rest. Works for me.
August 2, 2010 at 11:51 am
I missed your Debt Poll. We were on vacation, pre-planned and paid for before we even packed the first suitcase!
We have a line of credit that just sits there and I am so afraid of using it it’s secured about our home! Just the thought of losing something as huge as a home for STUFF sends shivers down my back.
The only debt we have is our home and we are 15 months away from owning our home free & clear! What a happy feeling.
Keep up the thought provoking posts Gail, I learn something new with each one!
August 2, 2010 at 2:24 pm
@Mrs. T
We’re one of those 14% debt free. We do own our house. However, we live in Regina, SK, and bought our house 8 years ago, just as the housing prices here started to rise to meet the national average — current “market value” of the house is 2.5 times our purchase price. I don’t know if today we could afford to buy this house….I’m sure the bank would loan us the money, but I don’t think we’d be willing to take on that amount of debt. (I honestly don’t see how people can afford to buy houses in Vancouver or Toronto…..)
August 2, 2010 at 2:55 pm
I have a mortgage and student loan but I don’t carry consumer debt. I use my credit card and I always pay it off the day after the statement closes. I haven’t paid interest on a credit card in over 6 years. I don’t have an LOC and never plan to. The account I use for paying my bills has almost an extra month’s worth of money just in case there is a paycheck snafu. My emergency fund is working its way to 6 months (I categorize an emergency as not working). I long ago looked at my bills and decided what could go if I lost my job or took a pay-cut. I keep the house and emergency money at a separate bank from my checking and credit card. The checking account is for daily expenses and has a cushion in it just in case. I also keep my car account at the same bank (I have an older car which breaks down on occasion). I am hoping to start saving for my next car in a few months. I also have a 401k (retirement) which I put 12% off the top of every paycheck and my company adds another 4% with an occasional additional profit sharing deposit. I have over the coarse of the last year switch to interest bearing checking accounts and increased the interest I earn on my short term savings accounts. I technically even earn interest on my credit card since it is a cash reward card and since I pay it off in full I don’t pay interest. I am hoping to get to a point in the next year to pay off the student loan with a lump sum and just have it out of my hair.
August 2, 2010 at 2:55 pm
Almost a year ago, we had a bad situation: 10K on an investments loan, 14K on credit cards, a mortgage and two costly and important jobs that had to be done on the house almost immediately. We consolidated everything thing into the mortgage. That was the best move we could have done, because we only added a small amount of time in the mortgage repayment. Now, we’re saving for the kids, saving for us, saving for an emergency fund and all our expenses are planned. Coming across Gail’s show, totally by chance, gave us the incentive, the information and the encouragements we needed to start the work towards debt-free.
The thing is, even if our only debt is now a mortgage, I still view it partly as consummer debt. It will probably take a while before I see it just as a mortgage. I think it’s a good thing I see it that way: it’s a reminder of where we were once.
Thank you Gail and all those who post on this site.
Annick
August 2, 2010 at 4:46 pm
Kathy in Regina, just wanted to share a real estate tidbit with you from Moose Jaw. About 8 or 9 years ago, I joined a ‘co-op’, who’s sole purpose was to buy crappy old homes, and as members all work on each other’s houses to renovate and refurbish. I got a 3 bedroom, two story bath and a half house on a corner lot for $52K. I left the co-op within two years, but now notice that this same house is on the market for — $199,900!!! When I think back to the problems in this house, I am flabbergasted, but will certainly be at the open house to check out any improvements! I am not one of the debt free, and won’t be for a while. At the moment, I am disabled on EI and can’t wait to be earning my normal paycheque again. I will have a lot of catching up to do, but thankfully I have the time to plot the course with the help of Gail’s site and all you posters!
August 2, 2010 at 6:02 pm
Mrs T.: I’m debt-free, but I don’t own a house or a flat and it’s very unlikely I ever will. A place that is as good at the one I’m currently renting and that won’t make me dependent on owning a car costs about 4 times my gross yearly income (a house would cost about twice that) — there is no way for me to pay that off in an acceptable time span.
When I was a kid, the only adult I knew who didn’t live in overdraft was my grand-aunt. She was also the only one who never even attempted to buy a house or a flat, and never owned a car. I try to follow her example, though I do allow myself the luxury of a car I don’t really need.
August 2, 2010 at 9:51 pm
Commenting on the current poll (reducing expenses): My fixed expenses (excluding food, entertainment, savings, etc) is at 35% of my take home pay.
If necessary, we could move to a cheaper apartment, and drop cable, but that would only make my portion of the fixed expenses at 30% of my take home pay.
However, that 5% drop would be almost a 20% difference between current costs and potential costs.
Regardless, I would be inclined to keep the status quo, since I’m living well below my means anyways (unless of course I ended up out of work, living on savings).
August 2, 2010 at 11:14 pm
hi gail i would like your advice on my financial situation currently 55yrs of age single have a goal of retirement at age 61. i also have approximately $300,000 in rrsp’s at this time. mortgage 157.00/wk balance is$ 56,000@ 2.75%, line of credit balance is $ 107,000@ 3.75% taxes$278/mth utilities$300/mth, car and home insurance $140.00/mth internet cable tv telephone is $131.00/mthcredit card is $6000.00@6.75%.my take home pay after taxes /mth is 3800. the house is apprised at $240,000 plus i have rented the three other bedrooms for the last 2yrs at $400/mth each total 1200/mth plus i am putting in an exstra $50.00/wk towards my loc.i would appreciate your advice gail enjoy watching your show.thanks
August 3, 2010 at 1:55 pm
We have a HELOC and mortgage (4.5 years left yey!!!), but the mortgage rate is higher (fixed) than the HELOC rate, so we’re concentrating on the mortgage..
August 3, 2010 at 3:25 pm
@Kathy Vancouver houses are insane. I met a nice NZ couple who asked about the house across the street from my place, and it’s going for just under $2 million. They didn’t say what NZ prices were but they sure gulped at that. I feel very lucky that I was able to buy my apartment almost 10 years ago in a nice neighbourhood, if a little sad that is all I will ever be able to afford.
August 3, 2010 at 5:31 pm
My situation is a little unusual because I have about $5k in credit card debt (account is closed and I’m just paying it off) but my mortgage is paid off and so is my car, and I have no other debt. I plan to be debt-free by December 2010. It will be the first time in my adult life since I got a credit card at age 18 that I will be debt free. About bloody time! I’m 44 now. Some people learn slowly…
August 3, 2010 at 5:49 pm
I, too, missed your survey. We have no debts whatsoever, having paid off the mortgage nine years ago. Apart from the mortgage, we took out one buy-now-pay-later plan three years ago on a purchase of dining room furniture, but we paid it in full before any interest could become payable (to the disappointment of Wells Fargo). Also, we briefly carried small debts related to prepaid funeral and burial costs, but paid them off as quickly as we could.
It’s just so much less stressful living without any debt and it was essential to rid ourselves of it well before I retired. Aiming to live mortgage-free was part of my original retirement plan. We lived well within our means for many years before I retired, so the reduction of income that we experienced when I did had no detrimental effect on us at all.
August 5, 2010 at 12:49 pm
Darn! I missed the survey as well; on the “negative” side, we carry a mortgage, credit card and LOC debt, but on the “positive” side, we’ve never taken part in the “buy now pay later”, every stick of furniture in the condo is paid in full, we have RSP’s and as of Aug. 3, our consolidation loan was paid off! WOO HOO!!!
The monthly loan amount was higher than our mortgage and we are now in the position to aggressively pay down the credit card and LOC debt (I’m getting chills just thinking about it), all while contributing bi-monthly to RPS’s and saving for our once-a-year vacation. It sure was nice to see that loan amount disappear out of our online banking line-up!