Today I was interviewed on CBC Radio’s The Current, on a segment about Doubting Personal Debt. But first, here’s an interesting fact: CBC radio prefers to use Skype for radio interviews. Skype, as you probably know, is a free service that allows you to send text messages, talk, and do video calls over the internet. I’ve done lots of radio interviews over the years, and all of them were done via telephone. CBC prefers the better sound quality of the internet, so here’s a picture of me this morning with my microphone plugged into my computer to do the interview.
With that inside view, here’s what we discussed about debt:
Debt is a “ticking time bomb”. It may not be a big problem today for many people because interest rates are low, but I made the comment that we could be in trouble if interest rates rise. Here’s the math:
If you have a mortgage and the interest rate goes from 3% to 4%, that may not seem like a big increase; it’s only 1%, right?
If the price of a loaf of bread goes from $3 to $4, that’s a $1 increase, but that’s a 33% increase in the cost. That’s huge, and it’s the same with mortgages, car loans, and all other forms of debt. If your mortgage interest rate goes from 3% to 4% that’s actually a 33% increase in your interest costs. That’s huge.
Here’s an even simpler way to look at it: An increase of 1% in the interest rate on your $200,000 mortgage is an increase in payments of $200 per month. Do you have an extra $200 per month? If you are living paycheue to paycheque you probably don’t, and that’s the problem with debt: if anything changes, like the interest rate, you’ve got a problem.
So what’s the solution? As I said on the radio today, the solution is to reduce your debt, so that if interest rates go up, or if you lose your job, or get sick and can’t work, you don’t get stuck with interest payments you can’t afford.
You can hear my four minute interview with Anna Maria Tremonti on the CBC Radio website (my comments start at the 8 minute mark).
If you already have more debt than you can handle, take 30 seconds and try our free, on-line debt options calculator so that you can learn how to eliminate debt, and defuse the ticking time bomb.