Personal Finance » Debt

Is debt inevitable?

“Debt is like any other trap; easy enough to get into but hard enough to get out of.– Henry Wheeler Shaw

The question of debt is one that intrigues, frustrates and irritates me. Since the early 1980s when credit cards were first introduced, our savings rates have been in a steady decline and our debt rates have risen. Debt is big business and it makes a lot of money for the financial institutions and other organizations that offer it. Too often, the people who can least afford it are charged the highest rates of interest and, while there is definitely a place for debt in our society (very few of us would be able to own homes without it), I believe that there is also a definite need for better education about debt and better programs to help people manage and get out of it.

Related article: Debt has become big business

Will debt always be there?

Last weekend I was out for dinner with friends and we were talking about their plans to buy a house. During the conversation, one friend made the comment that “it’s a fact; debt is always going to be there” and everyone at the table (except me!) nodded their heads in agreement. I resisted the temptation to challenge him on it (money talk has a way of taking the spark out of good dinner conversation) but the comment stuck with me for days afterward. I think what bothered me most was knowing that, as long as the people at the table believed that to be true, they would never have a reason to get out of debt and so they’re each likely to become a self-fulfilling prophecy.

I’ve been on a personal journey to defeat my debt burden for a couple of years now and I’m getting really close to being able to declare myself officially debt-free (15 months and counting!). Along the way, I’ve become very aware of how significant a factor debt is when it comes to a person’s ability to build wealth and create a solid financial foundation for retirement. I’ve also become very aware of how many people agree with my friend that debt is just a fact of life and treat it like a chronic illness, as something to be managed, rather than a disease to be eradicated.

Who wants to be debt-free anymore?

My boyfriend jokes that, because I try really hard to focus on the positives rather than the negatives, I live life too much on the “puppies and rainbows” side of the scale and I’m a little out of touch with reality. My response to this is usually that I much prefer puppies and rainbows to storms and drama and so I’m quite happy to be the weird one in our group! However, given that my views on debt seemed to be so out of tune with the views of our friends, I wondered if he might be right so I decided to do a little research. What I discovered made me more than a little nervous and even more determined to continue my debt quest!

Related article: It’s time to pay off debt

A 2013 poll by CIBC found that 50% of non-retired Canadians surveyed expected to carry debt into retirement. This was backed up by the fact that 59% of the retired people surveyed were carrying some form of debt and 37% of those had more than two debt payments each month. The most common forms of debt carried by those in retirement were credit cards (39%) and lines of credit (30%), followed by mortgages (16%) and personal loans (14%). Scarily, 20% of the retirees with debt said that their debt burden was increasing rather than decreasing each year, putting them under greater financial pressure.

Debt and retirement

Carrying debt into retirement is a problem because it increases the amount needed to cover living expenses each month. Debts carried into retirement also tend to become stagnant because people are paying only the minimum amount rather than paying them down and so they are rarely paid off. It makes sense that people who go into retirement with debt need more in retirement savings to fund their desired lifestyle (or they need to compromise their lifestyle in order to cover their debts)and this means increased financial stress.

Related article: Should retirement be debt-free?

The debt that we carry into retirement is often acquired over a number of years and seems to be the result of a debt-habit that becomes harder and harder to shed as the years wear on. We live in a society which not only accepts debt but also makes it very easy to accumulate it from early adulthood. Not surprisingly, the Canadian Financial Capability Survey of 2009, conducted by Stats Canada, found that people under 45 carried the largest amount of consumer debt and that couples with children carried more debt than couples or singles without children.

Of the people surveyed, 71% lived in a household that carried some form of debt. After mortgages, the most common types of debt were credit cards (48%), personal loans (41%) and other loans (32%). This backs up my friends’ perspective that debt is a fact of life and it makes sense to me that if you get into debt early, there’s an increased chance that you will carry it through to retirement unless you make a conscious effort to get rid of it.

Debt is normal; debt is weird

One of the perks of my job is that I get to interact with people at all stages of their financial journey and, while it’s always exciting to meet with people who are reaping the rewards of smart financial choices, it’s also sobering to meet with people who are dealing with the consequences of small savings and large debts. While debt may be a fact of life in our society, that doesn’t mean it needs to be the default choice. Doing what you can to minimize debts and establish a regular savings habit is key to both protecting yourself from a chronic debt problem that lingers into retirement and creating a solid financial future for yourself. As Dave Ramsey says, “debt is normal; be weird!”


  1. Sharon Hawrelak

    Small correction to Sarah’s article: she says credit cards were introduced in the early 80s but I got my first Visa card at age 19 in 1974, and they had been around for a few years and by the early 80s, multiple cards were accepted everywhere and it was a rare person who didn’t have a couple of them. This was in Edmonton. It was earlier in the USA.

  2. Claude Mayrand

    Is Debt Inevitable?

    I don’t define a mortgage as a debt in the same sense as consumer debt. In some cases the mortgage payments are too high compared to disposable income, but that’s another story.

    Credit card balances (20-30%), lines of credit (5-6%), car loans (APR is very misleading) are the real problem for people who have no discipline – euphemism for immaturity.

    Students loans are a little different; the rates are abusive compared to loans to new immigrants (1.38%), but at least the interest is tax deductible.

    I’ve had a credit card since about 1966 when it was called Chargex. At the time, I treated those transactions as cheques in my chequebook, deducting each charge as it occurred; I knew how much I could spend each month and never exceeded the available cash and always paid on time. I’ve never had a carry forward balance, but my monthly charges occasionally exceeded 2, 3, 4,000 dollars on some occasions. I once bought a used car with a credit card and paid the card off at the end of the month.

    Today, credit card transactions are simply impossible to avoid. But exceeding the available cash to pay the balance at the end of the month must never be tolerated. That may be what was meant during that dinner conversation you had.

    One type of debt you don’t mention is investment loans. I’ve used a Margin Loan for over a decade to buy stocks or funds that pay me monthly cash to cover that loan cost by a factor of 3 or 4, occasionally more. My unregistered retirement capital pays me about 14%, my Margin Loan rate is under 4%. My income is tax-advantaged, my loan interest is a complete tax deduction from my eligible income.

    Debt must be very narrowly defined otherwise it becomes a word like food or vehicle, which covers everything from spaceships to tricycles.

  3. Blake

    I got my car repoed from too much.

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