Consumer Debt Crisis is Looming: Predictions for 2019

Consumer Debt Crisis is Looming: Predictions for 2019

It’s been a long time coming, longer than Ted Michalos and I predicted in our past year-in-review podcasts. We predicted that 2014 and 2015 consumer insolvencies would remain flat, and they did. However, last year, we predicted that the seeds of a debt crisis had been planted, and we fully expected consumer insolvencies to begin to rise.  And they did, albeit not until the end of the year. As of October 2018, year-to-date Ontario bankruptcies and consumer proposal volumes were up 0.6%. That growth came mostly in the latter part of the year, with 5 of the previous 7 months showing year-over-year increases.

There is no doubt consumer debt levels have worsened. As we discuss in the podcast, Canadians added 3.5% more to total household debt in 2018.  The debt-to-income ratio, an often-watched metric, was restated by Statistics Canada and seasonally adjusted, with the result being that Canadians now owe $1.78 for every dollar of income they earn. That’s a staggering number.

The tide has turned. It’s not a matter of if households will collapse under the weight of all this debt, but when and by how much. Ted predicts a fast decline, with the possibility that consumer insolvencies could increase by as much as 8%in 2019. A more moderate prediction, I expect we will see increases in the range of 2% to 5%.

Listen to the podcast, read the show notes, or watch us on YouTube as we discuss the top debt statistics for 2018 and describe why we think the crisis has already begun.

Additional Resources

FULL TRANSCRIPT – Show 226 Consumer Debt Crisis is Looming: Predictions for 2019

consumer debt crisis is looming 2019 predictions

Doug Hoyes:    It’s time once again for our year-end review and New Year’s prediction show. Every year, we look at the trends we see in consumer debt and what it means for the coming year. Spoiler alert: The cost of carrying debt is going up faster than most people realize, so I don’t think there’s any doubt we have a looming debt crisis. To help decipher what’s happening, I’d like to welcome back to the show Ted Michalos, my Hoyes-Michalos co-founder and business partner. Ted, welcome back. Are you ready to pull out your crystal ball and tell us what’s going to happen in 2019?

Ted Michalos: I didn’t wear my swami hat, but I’ll take a risk and say something.

Doug Hoyes:    Excellent. So here we go. Now this is show number 226. Last year on show number 174, which aired on December 30th, 2017, we predicted that the consumer debt binge was likely to continue. Did we use that word? I believe we did. How did we do on that prediction?

Ted Michalos: We were correct.

Doug Hoyes:    Nailed it.

Ted Michalos: People are getting – just keep borrowing. There are all sorts of different metrics that you can use, but most importantly, Canadians added roughly 85 billion dollars in new debt – mortgages, credit cards, bank loads – in the past 12 months. As of October, Canadians owed 2.16 trillion dollars in debt.

Doug Hoyes:    That seems like a big number. So okay, debt is up, but borrowing has slowed. So total consumer debt was up 3.5 percent in October 2018 over the previous year, which is the most recent stats we’ve got as we record this in December. But that’s the lowest rate of growth in 30 years. So okay, what’s happening? Is debt going up? Is it going down? Is it slowing? What’s happening?

Ted Michalos: Well, it’s interesting. The way the media is presenting that is the way you’ve just said it. It’s the slowest rate of growth. It’s still growing, but not quite as fast. An analogy that someone has used is you’re driving the car at 120 kilometres per hour last year; this year, you’re only driving it at 100 kilometres per hour. Now the thing I’d like to point out is either one of those will get you killed when you hit the wall.

Doug Hoyes:    That’s right. Right. That’s an issue. Yeah, and if the population is going up by 1 percent, then total debt goes up by 1 percent just if everyone keeps doing nothing, right?

Ted Michalos: It’s the exact same thing. That’s right.

Doug Hoyes:    So the fact that it’s growing by 3.5 percent, you’re right, it’s still growing, and it’s still growing faster than the – how the population is growing.

Ted Michalos: Yeah. If you want to be morbid, if you had cancer, okay, it’s not growing as fast; but I’ve still got cancer.

Doug Hoyes:    It’s still an issue. So…

Ted Michalos: Right.

Doug Hoyes:    Okay, so we’re not growing as fast. And from the numbers, you know, mortgages are the big reason. Mortgages make up most of consumer debt. That’s not too surprising. In October, Canadians owed 1.5 trillion in mortgages. So obviously, they owed like 624 billion in consumer credit and everything else.

Ted Michalos: Wow. Yeah.

Doug Hoyes:    And it looks like mortgage growth is decelerating the most. So tell me about mortgage growth.

Ted Michalos: Well, so they are still growing, but it’s a slower rate than they’ve been doing historically. The annualized pace of growth is probably one of the slowest in Canadian history. In fact, it is, right? Over the past 30 years, the rate of growth has fallen below 3.2 percent just twice.

Doug Hoyes:    April and May 2001. There you go.

Ted Michalos: You’ve got them in the notes here.

Doug Hoyes:    That’s right. It’s right here, yeah. And that was 17 years ago.

Ted Michalos: Right. And…

Doug Hoyes:    So why is that? Why is it – why is the pace of mortgage growth slowing so much?

Ted Michalos: I mean, two major factors: The first were the change in the rules this year. So they’ve introduced the Stress Test that it’s making it more difficult, particularly for first-time buyers, to qualify for a mortgage. And the second, the real estate market in total has softened just about everywhere across the board.

Doug Hoyes:    Yeah. And so there’s less demand for mortgages, then.

Ted Michalos: Right.

Doug Hoyes:    Now the number’s we’re quoting we’re getting from the BetterDwelling website, so shout-out to them. It’s got lots of great stats. And I’ll put a link to them in the show notes. So debt is still growing but at a lower rate.

Ted Michalos: Right.

Doug Hoyes:    And that’s good, I guess. I mean, like you said, the wall is still coming up on us –

Ted Michalos: Right.

Doug Hoyes:    – but that doesn’t mean we don’t have a big debt problem on the horizon. So… Now a number that is often quoted in the media is the debt-to-income ratio. Okay? So the third-quarter results came out in the middle of December, and those numbers also confirmed that Canadians’ debt is growing. The seasonally adjusted debt-to-income ratio is now $1.78, up from the last quarter of just over $1.76. So what exactly are we talking about when we talk about the debt-to-income ratio?

Ted Michalos: So for every dollar of disposable income – it’s disposable income that Canadians have – they actually owe $1.78 in debt.

Doug Hoyes:    Okay. So… Now our listeners are probably sitting there going, “Now wait a minute. I thought that the debt-to-income ratio was just under $1.70 last year, so why are you saying it was $1.76 and now it’s $1.78? What’s going on?” Well, here’s the answer. And this is not something that was initially reported on in the general media, so it’s good that you’re listening to today’s podcast. The reason the numbers have changed is because the government changed the underlying numbers. The income number in the debt-to-income ratio comes from Canada Revenue Agency.

And of course, CRA knows how much money everyone makes because it’s on our tax returns. And the new numbers show that Canadians are not earning as much as we originally thought. This seems like a problem to me. So we know debt is going up, but if income is not going up as much as we thought, that makes the debt-to-income ratio worse than originally projected. They went back and revised the numbers, and since the beginning of 2016, the debt-to-income ratio was revised upwards by an average of about 3.5 percentage points per year. So does that surprise you?

Ted Michalos: Oh, it doesn’t surprise me at all. We’ve been worried about Canadian consumer’s debt levels now for years. Our concern has always been that people can’t afford the payments. And now what we’re discovering is that income has been overstated, and in fact, they can’t afford the payments.

Doug Hoyes:    Yeah. So it’s exactly what we’re seeing on the street. So if you have less income, that means less money to repay all of the debt. And of course, that’s the problem: debt is becoming less affordable. And that’s what’s always worried us. Now here’s one more scary fact: We are now consuming more of our income on debt payments than we have in the past. The debt service ratio has gone up from 14.08 to 14.51 over the last year. That means that Canadians are now spending 14.5 percent of their income on interest and principal payments.

Now we’ve been saying for years that debt is a problem, but the pundits have said, “Eh, don’t worry. You know, interest rates are low. We can afford it.” The impact of rising interest rates is showing up in our finances loud and clear. The total interest paid by Canadians – and this to me is the most amazing stat in this whole show, and we’ve got lots of stats – but the total interest paid by Canadians has gone up by 15 percent in the last year. 15 percent. Now, to me, that’s huge. What’s going on here?

Ted Michalos: Well, I mean, it’s simple math, folks. You have a dollar to spend. If your debt servicing costs go up 15 percent, that means you’ve got 15 percent to spend less on something else. So when interest goes up, you have to pay more. We should all be terrified.

Doug Hoyes:    Yeah. We can’t afford it. So now, that’s total debt, right? So let’s be a little more specific and talk about mortgages. So non-mortgage interest – so obviously, everything other than a mortgage: credit cards, bank loans, whatever – is up 16 percent. Mortgage interest being paid is up 13 percent. So last year, on this show, you predicted that mortgage rates would go up. Well…

Ted Michalos: Congratulations.

Doug Hoyes:    Pretty much, you were right on that.

Ted Michalos: I get a free mug.

Doug Hoyes:    You get a free mug. So okay, tell us about mortgages and what – you know, how much have they gone up, what’s happening?

Ted Michalos: Okay, so let’s look at some hard numbers. That’s easier for people to understand. According to RateHub, the discounted five-year mortgage rates – that’s the rates not posted by the bank.

Doug Hoyes:    So a real rate.

Ted Michalos: Right.

Doug Hoyes:    Which you’d actually pay.

Ted Michalos: So November of 2017, 2.69 percent. So that was a good customer for a first mortgage. November 2018, 3.34 percent. That’s a 0.65 percent, or 65 basis points, increase. That makes a huge difference on every $100,000 that you owe. It’s also – let’s go back to 2016 when it was 2.09 percent. So that’s a point – 1.2 points.

Doug Hoyes:    Yeah, that’s a huge number. And I know we’ve talked about this on the show before, but a lot of people still don’t grasp this. Mortgage rates, like you said, they were just over 2 percent interest rate a couple of years ago. And now they’re up to like 3 and 1/3. And again, we’re talking prime customer. So that’s up 1 and 1/3 points, which doesn’t sound like a whole – a lot. Okay, 1.3 percent. Who cares? Not really a big deal. But it is a big deal.

Ted Michalos: It’s a huge deal. So you’re comparing 2 percent to now 3.34. So that’s an increase of 65 percent in the interest rate. Did your pay go up 65 percent?

Doug Hoyes:    That’s a good question. How many people – raise your hands out there on YouTube – had their pay go up by 65 percent? And the answer is not many people.

Ted Michalos: Nobody.

Doug Hoyes:    Probably nobody. So and I know – okay, people are listening and going, “Okay, you guys are kind of picking the most absolute worst case scenario, the absolute peak and bottom.” And okay, sure, we are doing that, but… And so that absolute number may not be a relevant comparison for everyone, but… And it’s true. Maybe your mortgage isn’t up for renewal. Or maybe you locked in for five years or something. But how many people have HELOC – you know, home equity line of credit – or a variable rate mortgage? Well, the answer, I think, in 2018 was over 40 percent of mortgages reset this year.

Ted Michalos: Correct.

Doug Hoyes:    Either because it’s a variable rate or it was coming up for renewal – which means it’ll be roughly the same kind of numbers next year. That, to me, sounds like a bit of a killer.

Ted Michalos: Oh, it is. Again, because you haven’t got any more money coming in. What is it? The HELOCs hit 292 billion in September this year.

Doug Hoyes:    So that’s almost 300 billion dollars.

Ted Michalos: It’s close. And we’re using jargon here. That’s a home equity line of credit in case you’re not familiar with some of this stuff. So if you had a $50,000 balance on your line of credit and it was 2 percent monthly payment, it just went up by 83 bucks.

Doug Hoyes:    83 bucks a month –

Ted Michalos: On that one debt.

Doug Hoyes:    – on that one debt of 50,000. So if your HELOC is a couple hundred-thousand, obviously, you’re looking at, you know, 150, 200 bucks or whatever that is going up.

Ted Michalos: Well, you can use the same math on a first mortgage too, right?

Doug Hoyes:    Yeah. I mean, if you’ve got a $400,000 mortgage, amortized over 25 years, every quarter point is about 50 bucks.

Ted Michalos: Right.

Doug Hoyes:    And…

Ted Michalos: With your $50,000 example, or $400,000 mortgage… I mean…

Doug Hoyes:    It’s roughly the same kind of numbers.

Ted Michalos: Yeah, 640 bucks.

Doug Hoyes:    Yeah. And it’s… Okay, so it’s gone up, but it’s now gone up every month, month after month after month after month.

Ted Michalos: Right.

Doug Hoyes:    That’s where the killer. So a HELOC, as you said a home equity line of credit –

Ted Michalos: Yes.

Doug Hoyes:    – so and we’ve seen this in our business a lot.

Ted Michalos: They have, yeah.

Doug Hoyes:    People come in to see us, and they’ve got, you know, $50,000 worth of credit card debt. But because their house has gone up so much in value, they can go to the bank and say, “Hey, can I borrow that money against my house and pay off my other debt?”

Ted Michalos: That’s right.

Doug Hoyes:    Is that what we are typically seeing with people? And is that what they’re using their HELOC money for? Is that what they’re borrowing for?

Ted Michalos: I don’t know if it’s the principle thing that they’re borrowing it for, but it’s certainly one of the big things. And it’s only because they’ve been able to tap into it, because interest rates are lower on a home equity line of credit, and they’ve had this equity in their house. I mean, from the Hoyes-Michalos homeowner’s bankruptcy index, November of 2017, 7.9 percent of our clients that filed bankruptcy or proposal owned a home when they filed. You know, last month, that’s down to 5.2 percent. But if you go back to 2011, it was 34 percent. So I mean, it’s – people are tapping into that because they can right now. And I think that window’s closing.

Doug Hoyes:    Yeah. And it’s not showing up in the – like you said, the Hoyes-Michalos homeowner’s bankruptcy index yet, but we keep track of that every month. And again, I’ll put a link to it in the show notes. We put that right on our website. So there’s lots of people in the media who follow it. You can certainly follow it as well. What that really means in layman’s terms is if you own a house, you’re not filing a bankruptcy or consumer proposal.

Ted Michalos: You’ve been able to refinance for at least the last couple of years.

Doug Hoyes:    Because the house price has been going up. So even if your debts have been going up, it hasn’t mattered, because house prices have been going up.

Ted Michalos: Right.

Doug Hoyes:    So your worry is what happens if house prices don’t keep going up?

Ted Michalos: Exactly. I mean, we’re seeing more people with houses – I can tell you that anecdotally, because they can’t borrow any more. The market is softened. They’ve already used the equity trick once. Whatever the reason is, they just – they can’t tap into that number anymore. And that’s making a big difference.

Doug Hoyes:    And that’s a key point you’re raising there: It’s not that they don’t have equity; it’s that they can’t get it.

Ted Michalos: Right. Right.

Doug Hoyes:    So you’re seeing – the banker is saying, “Well, okay. You’ve got 100,000 in equity, but because of the Stress Test, because of your income, whatever –”

Ted Michalos: “Because of the rules that are in place, we just can’t give you access to it.” Now, sometimes they’re saying, “Well, why don’t you go see somebody for a second mortgage?” But second mortgages are always a dangerous idea. I mean, the interest rates are higher, and it’s – you’re trading one problem for another.

Doug Hoyes:    So the banks have tightened. They don’t want to take on the risk going forward.

Ted Michalos: Right.

Doug Hoyes:    So your comment about things might be getting softer in the future – okay, the banks are seeing it already. That’s why they’re tightening up. So…

Ted Michalos: Yeah.

Doug Hoyes:    Well, and I know. I mean, this has happened to me two or three times over the last couple of months. You know, I’m talking to a guy who has a line of credit. I’m not even talking about a HELOC, not a secured line of credit secured by the house, but just a normal, garden-variety line of credit. And you know, last year, the interest rate was 5 percent; but a couple of months ago, the bank said to him, “Oh, guess what? It’s now 10 percent.”

Ted Michalos: Yep.

Doug Hoyes:    Why would the bank bounce his interest rate up that much?

Ted Michalos: Risk, right?

Doug Hoyes:    Right.

Ted Michalos: Well, I mean, they do it because they can, because you signed something saying that you’re going to pay a variable rate and it’s subject to market conditions. And if the mortgage rates have gone up 1.3 full percentage points, or 65 percent in the last two years, then a regular line of credit of interest rates is going to go up that same amount.

Doug Hoyes:    So how does that impact on consumer insolvency levels? So before we get to the prediction section of this show, what’s happened with consumer insolvency levels in Ontario so far in 2018? And we’ve got numbers up till the end of October. The government’s always a couple of months behind, so we don’t have the full year yet.

Ted Michalos: At the end of October, it was what, 0.1 percent of Ontario?

Doug Hoyes:    Yes. It’s just under a percent. And but they’ve been up – I think it’s like 0.6 percent if you look at Ontario – but they’ve been up five of the last seven months.

Ted Michalos: That’s right.

Doug Hoyes:    So okay, they were down earlier in the year; now they’re starting to come back. So that’s a potential warning sign. Okay, so we’ve got a good picture of what’s been happening or why it’s been happening. So now it’s time for predictions.

Ted Michalos: Right.

Doug Hoyes:    So what do we see for 2019? So first up, let’s talk interest rates. So everyone watching this show knows they’ve gone up 25 basis points – that’s a quarter of a percent – five times since July 2017. Are you – are we going to see more interest rate increases coming?

Ted Michalos: Yeah, I hate to say it, but I’m – by the end of 2019, we’ll see at least 75 more basis points.

Doug Hoyes:    So…

Ted Michalos: So another three times, it’s going to go up that quarter point.

Doug Hoyes:    If they do it by a quarter of a point. Okay, so… And if I had to predict, I’d say, “Yeah, that sounds reasonable.” Who knows? It could be more or less than that. So…

Ted Michalos: But that means we’ll have gone up 2.5 points in two years.

Doug Hoyes:    And we were starting at like 2.

Ted Michalos: 2.09. Yep. So…

Doug Hoyes:    That’s more than double, isn’t it?

Ted Michalos: Yep.

Doug Hoyes:    If I’m doing the math in my head here. So you are predicting that by the end of 2019, you know, an interest rate… Well, let’s take – let’s talk about mortgages.

Ted Michalos: Well, let’s be simple, yeah. In 2009, it was 2.09; we’re saying by the end of 2019 –

Doug Hoyes:    Yeah, 2016.

Ted Michalos: – yeah, right, it’ll be 4.

Doug Hoyes:    Yeah. So more than double. And so if all I’m doing is paying interest, I’m paying twice as much, then.

Ted Michalos: Correct. And particularly anybody in a new house, that’s exactly what you’re doing. You know you’re not paying down your capital. That bill every month is interest.

Doug Hoyes:    So what impact is that going to have, then, if interest rates are going up on, you know, mortgages, which are the biggest component of our debt – obviously, they’re going up on everything else. I mean, maybe they don’t go up on credit cards, ’cause they’re already at 20 percent.

Ted Michalos: Yeah. Credit cards don’t fluctuate the same way that mortgages do.

Doug Hoyes:    Well, a standard one doesn’t; but if you’ve got a low-interest credit card, those are the ones that bump up. So we already said that so far in 2018, the rate of consumer proposal and bankruptcy increase has been relatively flat – you know, half a point…

Ted Michalos: Right.

Doug Hoyes:    What is your prediction for 2019? How much… Well, first of all, do you think the rate of consumer insolvencies will go up? ‘Cause it’s been going down for eight straight years. 2018 will be the first year where it’s either flat or a little bit up. Is it going to go up next year?

Ted Michalos: Yeah. I don’t see how it could possibly be flat. I mean, all the indications, between the interest rates and other costs of living going up, consumer insolvencies are going to go up. You want to be…

Doug Hoyes:    Give me a number, a real number.

Ted Michalos: Real doom and gloom guy?

Doug Hoyes:    What’s the number?

Ted Michalos: Somewhere between 8 and 10 percent.

Doug Hoyes:    8 and 10 percent? 8 and 10 percent, he says, they’re going to go up.

Ted Michalos: He’s smiling at me because he thinks I’m being a…

Doug Hoyes:    Wow. So…

Ted Michalos: I’m not overstating it. I think that’s what’s going to happen.

Doug Hoyes:    Yeah. And if I had to predict, I would say, “Well, I don’t think it’s going to go up that much, but…” I mean, I can certainly paint the scenario where it does. I mean, even if it went up – what did you say, 8 to 9 – 8 to 10?

Ted Michalos: 8 to 10, yep.

Doug Hoyes:    So even if it went up 10 percent, that would only put us back to where we were in, what, 2015, 2016? I mean, the…

Ted Michalos: Yeah. I mean, we’d be nowhere near the peaks, no.

Doug Hoyes:    We’d be nowhere near the peaks. So we are 40 percent less than where we were at the peak. So even a 10 percent increase – and I realise you’re dealing with different bases, so it doesn’t make sense – but yeah, I mean, I would not predict that much.

Ted Michalos: Right? But you’ve always been more positive.

Doug Hoyes:    I know. I’m the happy-go-lucky guy here, so… But you know, could I see a 2, 3, 4, 5 percent increase? Absolutely I could. And if interest rates keep going up –

Ted Michalos: And they’re going to.

Doug Hoyes:    – then boom, you can… It’s like rolling a ball off a table. It’s going, it’s going, it’s going, and then, boom.

Ted Michalos: And I think the only thing that’s stop them increasing this fall is that fuel prices dropped again. I mean, the big problem this spring was gas prices went through the roof. You’re suddenly paying $1.45 for premium, which everybody’s putting in their new cars. It’s dropped back down to $1.18. And that’s relieved some of the pressure. And they’re going to go back.

Doug Hoyes:    Well, and I drive an old car that doesn’t take premium. And I think I’m paying $1.00 or $0.95 or $1.05 or something like that.

Ted Michalos: The new one plugs in.

Doug Hoyes:    Oh yeah, that’s right. If they plug in, then you’re good. So a 10 percent increase would imply perhaps that we’re now into a recession.

Ted Michalos: I don’t directly tie consumer insolvencies to the economy that way. Because what we experienced through this last economic boom for a lack of a better term was the economy got better, but lots of people were left behind. And so I think that what we’re going to experience first is all those people that got left behind aren’t going to be able to deal with the squeeze. So they’re going to be the ones that fall off the ledge first. Now that might drive a recession. We could – I could make – that’s a good argument. But I don’t – the one doesn’t necessarily follow the other.

Doug Hoyes:    Yeah. And you could get into debt problems, even if you’ve got a job. In fact, that’s all of our clients, or most of them –

Ted Michalos: That’s right.

Doug Hoyes:    – its’ “my debt is growing…” Or it’s not the debt; it’s the cost of carrying the debt. That’s kind of the point we’re trying to emphasize here.

Ted Michalos: And I mean, yeah, because we see people at every income level. So the folks that actually take on the most debt are the ones that think their income is going to increase. So they anticipate it and they start to spend differently. And when those realities don’t come about or the cost of servicing that debt gets too high, then they’ve got to come and see us.

Doug Hoyes:    Yeah. If you’ve never had a job and never had any income, then you probably don’t have any debt.

Ted Michalos: Yeah.

Doug Hoyes:    It’s the future. I think my things are going to get better, I think I’m going to get a raise at work, so I start accumulating debt now. So it’s… If that anticipation turns into the opposite, things are starting to get worse, then I’m not borrowing for the future; I’m borrowing to survive. And that’s where it can really, really collapse.

Ted Michalos: Yeah. I mean, if you want to steal from the headlines, we’ve got all of the uncertainty in the US, we’ve got the uncertainty in Brexit, we’ve got whatever the Chinese are doing. There’s lots of reasons that somebody could predict a recession right now. I think the consumer debt prices contribute to that problem, as opposed to the other way around.

Doug Hoyes:    So we’re not economists, even though we obviously play them on these podcasts here.

Ted Michalos: Right.

Doug Hoyes:    And our job is not to advise the government or corporations or anything like that.

Ted Michalos: Nope.

Doug Hoyes:    We’d be happy to take millions of dollars from them if they wanted to, but that’s – they’re not calling us. Our job is to advise individual people.

Ted Michalos: Correct.

Doug Hoyes:    So a final question to you: If your prediction is right – even if it’s wrong – things… You know, the cost of servicing debt is going to go up.

Ted Michalos: What if I’m only half-right? It’s still horrible.

Doug Hoyes:    It’s still a big problem. So okay, what is your practical advice, then, for someone who is listening to us right now, who is sitting there going, “Well, okay. Well, I could, I guess, lose my job or get my hours cut back. Or even if I don’t, the interest rate on my line of credit is probably going to go up. It’s going to cost me more. So what should I be doing right now at the end of 2018, at the beginning of 2019, to set myself up for 2019?”

Ted Michalos: Debt problems do not go away. You’ve got to deal with them. So the best advice we can give everyone is if you can’t deal with them yourself, reach out to somebody, like ourselves, like your banker, like a credit counsellor, someone who’s qualified to help you, so you can analyse the problem, figure out a plan to become debt-free.

Doug Hoyes:    And so analyzing the problem starts with adding up what you’ve got.

Ted Michalos: Yeah. You’ve got to start with recognizing the problems. And make a list; these are all of my debts. So I’ve got – my mortgage is at 3 percent; oh, but it’s going to renew this year – probably at 4. I’ve got a home equity line of credit. I’ve got three credit cards. So I’m going to owe 5,000 bucks when I file my taxes this year. Become aware of what the problem is. That’s the first step to getting your hands around it and solving it.

 Doug Hoyes:   Yeah. And I like the term “stress test,” which of course is what bankers do. But that’s really what it is. So I’ve got my line of credit right now, and the interest rate is whatever. Let’s say they’re charging me 5 percent. Well what if it went up… Your prediction is 75 basis points. What if it went up 5.75, 6 percent? You can do the math pretty easily. How much do my monthly payments go up? How does that affect me?

Ted Michalos: Right.

Doug Hoyes:    And if the answer is, you know what, I’m already on the edge, I cannot afford anything more – then that’s when you’ve got to reach out and deal with it.

Ted Michalos: And statistically, Equifax, TransUnion, all of those credit-reporting agencies are telling us that people are on the edge. That’s what that $1.78 of debt versus income means. For every dollar you earn, you owe $1.78 in debt.

Doug Hoyes:    Yeah. It’s a big issue. So that’s the starting point for 2019. If you’ve got debts, then they’re not going to go away on their own. Reach out and deal with them now.

Ted Michalos: Right.

Doug Hoyes:    Excellent, Ted. Thanks very much for being here. We will reconvene in a year and see if your prediction of a 10 percent increase in consumer insolvencies ends up coming true. So that’s our show for today. This show is our most-researched show of the year – not to say that we don’t put in research to our other shows of course – and I do like to show our work. So I’m going to put links to all of the research that we quoted today in the show notes over at Hoyes.com. That’s H-O-Y-E-S.com, where we’ve also got a full transcript of today’s show and a link to our YouTube DebtFreeIn30 channel, so you can watch the video of all of our shows and see what it’s like behind the scenes. Thanks for listening. For Ted Michalos, I’m Doug Hoyes, that was “Debt Free in 30.”

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