Inflation concerns: Experts urge caution as new poll finds one in four Canadians take out loans – National

One in four Canadians admitted to going into debt in 2022 to pay for the rising cost of living, according to a new survey. It’s a trend that has some experts sounding the alarm.

In the face of inflation, taking out any type of loan to help pay the bills should always be a “last resort”, says an expert.

The survey, conducted by Canadian personal finance comparison site Finder.com, asked more than 1,000 Canadians from July 14-18 how they were adjusting to inflation this year.

Twenty-four percent of respondents admitted to going into debt to pay for higher living expenses in 2022, with the top three reasons for taking out loans being to cover bills, consolidate existing debts and cover living expenses due to job loss.

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Moshe Lander, a senior lecturer in Concordia University’s Department of Economics, suggests finding ways to cut spending instead of taking out loans. This could help Canadians save without necessarily having to resort to loans.

“When dealing with inflation, the idea of ​​using any kind of debt to help pay your bills should always be seen as a last resort,” he said.

The current inflation is unfortunately something that Canadians are “just going to have to deal with,” even if the Bank of Canada can get the situation under control to some degree, Lander said. During inflation, Lander added, interest rates will inevitably rise.

So by taking out a loan, “you’re hurting yourself in two ways,” Lander said. “First, you’re buying something that you can’t initially afford. And second, you’re going to pay it off with a loan where the interest on that loan is going to increase, which means you’re going to continue to pay it at a higher price than if you had never taken on that payment.


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Ask an Expert: Beating Inflation


Ask an Expert: Beating Inflation

The annual inflation rate was 7.6% in July, down from an 8.1% gain in June, according to an August 16 Statistics Canada report.

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Romana King, finance editor at Finder.com, says getting into debt — usually in the form of credit card or short-term loans — becomes a big deal because “unexpected or unexpected debt is usually more expensive.”

It can be a very difficult cycle to break, she says.

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King says a lot of personal finance experts would tell clients not to go into debt, but the reason people go into debt is because they “feel a necessity or a need.”

“What you need is a good strategy or solution to figure out how you can pay off that debt and get back on track,” King said.

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In addition to cutting expenses, King said Canadians can learn to bargain and try to compare prices. This often saves money.

“Remember, you can cut costs on insurance, cable, streaming services, and even grocery bills,” King said.


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Economic News: July Inflation Numbers


Economic News: July Inflation Numbers

King says people can also look where they can consolidate debt by reducing short-term loans or paying off credit card debt that has higher interest rates.

“It can reduce the overall burden or cost of debt and free up more money to pay off debt, so you get rid of debt faster,” King added.

“You have to find a way to get (income) to stretch as far as you can without relying on big pay raises,” Lander said, adding that a raise could temporarily satisfy Canadians, but “it will turn around” in the long run.

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Lander, however, says some loans, such as paying mortgages, are justifiable as long as they’re affordable. Individuals or families should have the necessary income to maintain their lifestyle and be able to repay their debt.

He warns that taking out a loan to meet inflation can also result in an individual being cut off by the bank at some point when they are no longer able to support it.

“At this point, you’ve left yourself with very, very few options where you’ll have to make extreme cuts, because you’ve taken on all that debt,” he said.

“So it’s better to tackle it early on, limit that spending, and make sure the debt is only used for something that creates some kind of lasting benefit, rather than just paying for current expenses.”

— With files from Craig Lord of Global

© 2022 Global News, a division of Corus Entertainment Inc.

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