Introduction to Credit or Borrowing

Money is a tool that we all use to buy things we need and want, including food, clothing, shelter, as well as holidays, entertainment, movies, toys, books, and so on. When we don’t have enough money today to buy the things we need or want, we can borrow money from a lender with a promise to repay it at a future date. There are many forms of borrowing, which is also called credit.

Credit or borrowing is a tool to bridge between when we need money, and when we will earn it in future. Like most tools, it is neither good nor bad, it depends on what you need it for, and how you use it.

Good Debt: Investment in something that creates value or produces more in the long run. Examples- mortgage to purchase a home, student loan to pursue education for career or loan to launch a business.

Bad Debt: Debt that is taken on to buy something that immediately goes down in value or buying something that you can’t really afford, or repay on time or in full (resulting in recurring interest charges, which leads to more debt). Examples: charging vacation or dinners out on a credit card that you cannot immediately pay off, or obtaining a personal loan to pay basic monthly utility or grocery expenses.

The result of bad debt is that the interest costs on the credit card or loan add significantly to the original cost of the purchase. This can lead to a dangerous downward spiral in your finances, making it more and more difficult to cover your expenses with your income.

Let’s look at a few statistics:
Many Canadians borrow more than they can handle, as these figures show:
Household debt in Canada reached a record $1.8 trillion in 2019 up from $1 trillion in 2005. This works out to $50,000 per person. (1)   Canadian households owe $1.71 for every dollar they earned in 2020, up from $1.16 in 2005. (2)

A total of 125,474 Canadians filed for personal bankruptcy or filed a consumer proposal between June 2019 and June 2020, a decrease of 5.8 percent over the previous 12-month period. (3)
1. Statistics Canada
2. Statistics Canada; The Globe and Mail, May 11, 2010.
3. Personal Bankruptcy Statistics: How Many People Go bankrupt in Canada? Bankruptcy Canada

The next few articles in our Orientation Series will give you some helpful information about credit and borrowing, to make you a better informed consumer of credit products. We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website

Karin Rimnyak, Certified Financial Planner®
Investment Advisor
Insurance Advisor, Action Financial Group Ltd.

David Dryburgh, Certified Financial Planner­®
Investment Advisor

Insurance Advisor, Action Financial Group Ltd.

Ian Barrie, Certified Financial Planner®
Investment Advisor

Insurance Advisor, Action Financial Group Ltd.

This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.