The struggle we see today in the financial world is the is increasing between generations. Money has lost its purity. The word Credit has more value than money itself – arguably of-course. The reason is due to the fact that your credit worthiness dictates your access to your future funds – so, you tell me who the boss is?
People talk about three generations, Boomers, Busters (Gen – X) and Millennials (Gen – Y). These all three generations are stuck into the debt mud. Boomers are worrying about paying mortgage after retirement (if there is any retirement for them after-all). Busters are dreaming about a debt free retirement and buying cars on loan. The Millennials are worrying about student debt.
Student Debt:
According to a recent BMO survey – more than half of the students will have debt after they graduate, average $20,000. Another (older – 2009) survey by TD said an average loan amount of $27,000 which was taking about more than 10 years to pay off.
Student Loan and Mortgage:
There are many instances where homeowners are still paying their student loans. Therefore the debt trap starts with the student loan and deepens as time passes by. After university a car is needed. Zero cash down 0% interest rate makes a new car more attractive than an old one.
The Long Journey:
Once trapped in debt, it is hard to break out of it. About 12% of the workers at their 60’s do not know when they will retire. The last BMO household debt survey showed that the total debt only gets reduced marginally – once a person reaches their 60’s. The borrower fails to eliminate debt completely at his retiremtnt age.
The problem is in deeply embedded in our credit culture. The habit of looking at credit as cash has to stop.
The Way Out:
Obviously this is a personal preference. Do you really want out of debt? A lot of Canadaians are okay to live with debt. If you do want out then the ways are simple. You have to start early in life, initite by eliminating your student debt.
- First stop borrowing for non-essential goods. Don’t give in to temptations.
- Find a work when you are a student. A large number of students are finding this as one of the most viable option to reduce the debt load.
- Try to get a scholarship.
- Don’t use credit card if not absolutely required.
- Ask your old man to shell out some dimes. (Parents should seriously consider RRSP)
- Avoid back to school buying spree.
- Don’t think about a mortgage right away. Save your down payment – it is going to be very hard on you – before you think of buying. There is one problem though – should you really save for down payment or pay off the debt faster?
Plan Your Retirement:
Complete the most difficult task of setting a retirement date for yourself. Work on it – first find out he true cost of retirement. Re-baseline the dates if necessary but don’t give up. It is not easy to be debt free as you took on debt without realy knowing how will your income change over the years.
Readers please let us know what do you think about becoming debt free?
Student debt can often get in the way of making ratios work when trying to purchase a new home as well.
Yes that happens sometimes too. Thanks for pointing out.