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Canadian consumer debt soars 53 per cent

Ashleigh Patterson

Australian police said Friday they were investigating the theft of some 500,000 credit card numbers which resulted in Aus$25 million (US$26.2 million) worth of fraudulent transactions.

Looks like Canadians have learned nothing about the perils of debt from our friends across the border. Over the past five years, Canadians have increased their consumer debt loads by 53 per cent, according to new figures from the Credit Counselling Society, with the heaviest borrowing occurring in the two years immediately after the global financial crisis.

"On average, clients come to us owing over $31,000 of unsecured debt," Scott Hannah, president & CEO of the non-profit Credit Counselling Society said in a release. "Our hope is that consumers take heed of the warnings and decrease their reliance on credit."

Unsecured debt includes loans, credit card balances,  home equity lines of credit and unpaid bills.

Canada's debt-to-income ratio has now reached a record high, topping levels seen in the U.S. just before the housing market collapse of 2008.

In the second quarter of this year, Canada's household debt-to-income ratio jumped to 163.4 per cent. This means that for every dollar earned, Canadians now owe $1.634, including both secured (i.e. mortgages and car loans) and unsecured debt. In 1980, the debt-to-income ratio was 66 per cent, according to Statistics Canada.

Granted, owning a home is an investment that most can't afford without a mortgage. You can always sell your home and pay your mortgage loan back, right? Wrong.

The Canadian housing market is in a state of decline, with home sales dropping 15 per cent in September.  Young homeowners with little equity in their properties are particularly vulnerable to a housing market correction and could find themselves underwater on their mortgage. The U.S. learned this lesson the hard way, which is why Bank of Canada Governor Mark Carney is urging Canadians not to relay on home assets as an accurate picture of net wealth.

Home values decline, people lose their jobs and interest rates rise -- making that monster mortgage, credit card debt and student loan unserviceable.  So before you roll your consumer debt into your mortgage,  secure financing for a new car or run up the charges on your credit card buying holiday gifts -- you may want to think about how you'll cover that debt if that worst-case-scenario becomes reality.