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  • Writer's pictureWayne Drury

The Truth of The Pain and Simple of Debt

Updated: Jun 27, 2023

Till debt does us apart

Thousands of bank customers could default on their bank debt.

Thousands of Canadians could default on mortgages due to rising interest rates and government policy driving up energy costs, part of the overall impact of inflation

Sage Advice

I am being somewhat sarcastic as the CEO of the bank sits there in his $1000 Guchi shoes, having the audacity to tell us we will have to adjust our spending and that only a small percentage of customers will default.

What is a small percentage? In a Toronto Star article, it is suggested that tens of thousands could be vulnerable. Does that sound like a small percentage to you? All the while the bank - Scotia Bank, in this case, reaped record profits of 10.75 billion for 2022.

In addition to the mortgage debt problem, there are thousands who hold car loans, revolving lines of credit, credit card debt, and the list goes on. The average Canadian holds approximately $21,000 in debt, not including a mortgage. This represents an increase of 8.2% over last year (2020 - 2021) and 6.4% between the first and second quarters of 2022.

Those numbers put the boots to the conversation we previously heard that people were living off their savings. Quite a few of those folks have had to live off borrowed funds as they have no savings, which begs the question, what happens when those defaults kick in?

I can only suggest we are in deep trouble in Canada. Add the mortgage holders who are not going to make it; add the people who hold 21,000 in debt and are not going to make it, and add the increase in numbers in both categories for people who are not going to make it. What have we got? This is a serious problem which will be gravely exacerbated by the government's increase to the carbon tax resulting in inflation of an estimated 40% over the next seven years.

This is scary stuff, but a solution proposed by the CEO of RBC suggests, “This is not a bank credit issue. This is an issue of consumer lifestyle... More money will have to go from discretionary spending to interest expense.”

The pomposity of that statement. All the while we have a ballooning population surviving on food banks, now over 1.5 million per month and growing

Mortgage Payment Increases

When it comes to higher payments, Dodig, RBC CEO gave a few examples, noting that fixed-rate mortgage holders renegotiating this year can expect to pay an average of about $350 more per month while variable-rate mortgage payments will go up by about $700 per month.

To check the truth and consequences of the mortgage increase, a $600,000 mortgage with all the costs and going from 3.4% to 5.88%, a person will face a $772 increase. That is 15% taken off the top of a person's annual salary.

Is a Picture Emerging Here?

On a $60,000 salary, we have the following impacts:

The cumulative impact is 205%, a cost of $6,200 in 2030.

Where is this all Going?

This is all going to what I suggest is a very dark place. We have a government that is having and will continue to have a huge negative impact on our lives and carries on as if no one cares.

We have the CEOs of two major banks making grand statements about what people will need to do, ignoring the facts that go beyond their own self-interest.

And we have the families who must use the food banks and face the realities of paying back their debt.

All told, it is a disaster in the making, and will only get worse.

I wish I had better news, but I don't.

Best wishes and kind regards,

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