K96.3 FM Radio

DEBT TO INCOME RATIO HAS REACHED 146% IN CANADIAN HOUSEHOLDS
CARNEY SAYING THAT IT IS A REAL PROBLEM THAT CANADIAN FAMILIES HAVE TO DEAL WITH…
SAYS IT IS INTERFERING WITH LONG RANGE FINANCIAL PLANNING …

Carney identified this as the main domestic risk. Our debt to income ratio is worse than it was in the US in 2006. This could create a deterioration of [economic] activity and financial stability.” He also said that with housing affordability on the decline and households “increasingly stretched” financially, “the probability of a negative shock to property prices has risen as well.”

So whenever debt reaches high levels it has a snowball effect because it affects growth in the economy and personal savings and investment. This is the current issue in the US. They are trying to stimulate spending and the consumer is tapped out because they are trying to pay down debt. When interest rates rise it further burdens borrowers. Your financial plan is not very productive, it becomes debt reduction. Let's hope you have an asset on the other end so it is like a forced savings. The general rule of thumb is that if your interest rate is higher than your earning potential in your investment you should pay down debt.