Rob Carrick: Change The Way We Borrow & Save

Posted in Debt Free In 30
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

pay off debt or save

Canadians Worried About Debt

Today's guest is Rob Carrick, personal finance columnist for the Globe & Mail. When the Globe announced they were going to start a financial boot-camp, Rob discovered that the most urgent concern for Canadians is debt, and they told Rob that they are in debt because they can't control their spending.

This is a significant problem and Rob believes that the current low interest rate environment has encouraged Canadians to borrow more than they should, leading to our very high debt levels. Rob suggests that we need to change the way we borrow and that perhaps what we really need is

a shock to get us out of [our borrowing habits].

Much like the housing market crash in the United States, Rob believes that Canada needs a similar wake up call to learn a harsh lesson about reducing our debt load.

Even though interest rates may be at an all time low, Rob talks about how debt sets the stage for problems down the road;

  • Do you have the cash cushion to ride a shock like what is happening in Alberta right now?
  • Are you ready for retirement?

Save or Pay Off Debt?

Rob states emphatically that if you have high interest rate debt, like credit cards, you should pay those off first, no questions asked.

However, if you have a low interest rate mortgage, say 3%, and are earning 6% after tax on your investments, Rob believes it's prudent to pay your mortgage off in the normal course, and devote all extra money to your retirement savings.  He makes the case that we should not obsess about our mortgage because we're already on a plan to pay it off.

Saving for retirement beats paying down your mortgage.

As I say on the show, I understand the math, but I worry that if the stock market has a serious correction (like it did in 2008), we will look back and wish that we had used our extra funds to reduce our debt.  One piece advice for deciding which approach to take is to assess your own ability to handle risk and whether changes in the stock market are worth investing rather than paying down your mortgage.

Gen Y

In our Let's Get Started segment we discuss "Generation Y".  Rob defines this generation as young people, generally in their twenties, who are just starting out in the workforce.  They face two unique challenges:

  1. Under-employment.  They can find a job, but it may not be in their chosen career, so it's difficult to gain work experience.
  2. The prevalence of contract and temporary jobs.  Young people working in these roles have no benefits and no job security.

Rob's advice for Generation Y is to think about what you want to study in school, with a view to future employment, and keep student loan debt to a minimum.  He suggests that those just starting out think about how to make themselves marketable to employers.  This may not mean studying a subject because you are passionate about it, but rather, studying a subject that you know will lead to a career and gaining industry skills that are valuable to employers.

Listen to the full show or read the full transcript, Show #29 - Mortgage Payments vs. Investing, for more information and advice.

Resources Mentioned

About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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