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#1 of 51 Old 11-15-2012, 01:08 PM - Thread Starter
 
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I just read in our local paper that the average consumer debt (non-mortgage) in my province is over $38,000. DH and I are raising four kids, in a very high COL area. DH makes just slightly over the median income for our area. We don't live a lavish lifestyle, but we're hardly skimping (we have meals out for all our family birthdays and anniversaries, take some kind of family vacation every year, pay for dd1's piano lessons, have a nice Christmas, etc., and we eat well). Even when we had a brand new van, with no payments on it, our debt didn't come up that high, and it's been back down to four figures for months. I know of families who have this happen in the US, due to medical bills, but that's not what's going on here. (I'm not saying there couldn't be some families with high debt for unusual medical costs - our provincial plan doesn't cover everything. There aren't enough of those for the average debt to be closing on $40,000, though!)

 

Nobody in my closest circle of family and friends has ever even come close to this amount of debt. I'm honestly curious - what on earth do people spend this kind of money on?? Does anyone have any ideas? I'm trying to picture what kind of purchases would push average debt up to these heights, and I just can't come up with anything.


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#2 of 51 Old 11-15-2012, 01:25 PM
 
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Our debt has never been 38000, but when it was high, it was mostly little things.  The latte factor.  We were living beyond our means and slowly but surely built up credit card debt doing things like eating out, paying bills we didn't have cash for, and in my case I bought a bunch of stuff for a home business thinking it would sell at a profit (It was donated 6 years later.) Once we realized we were in over our heads with debt we decided to get a loan to pay it off and just have the one lower interest rate to deal with. Well, the bank wouldn't give us a loan for that small an amount, and they ended up giving us a 10 000 line of credit.  We couldn't resist spending it. It was there, it was so hard for us not too. It was just irresponsible. DH went on parental leave and I was a SAHM so we did not have enough money for our day to day needs and used credit.  Then when he was back at work he got injured, and WCB would not cooperate with us, and we had nothing except credit cards to use.... so within a few years we had spent every bit of credit we had, around 15 0000.  My story probably makes us look pretty bad, but we learned a lot.  We started our family on one small income and wanted to live like we had two.  We were very fortunate to have family help to get out of debt and now we have no credit at all and manage to do okay.  I am so glad I can't spend money I don't have, because my willpower is not very strong!  I can see how it happens to people and gets worse.  If we had been able to buy a new vehicle as well, our debt would have been in the average range.  

 

Are students loans considered consumer debt? A lot of people I know have big student loans and that probably factors in.


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#3 of 51 Old 11-15-2012, 01:40 PM - Thread Starter
 
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hmm..I could see a chain of events like that...but you still only reached $15,000. I just...up until a few years ago, I'd never lived on more than about $40,000/year for our household. Admittedly, we usually didn't own a car, which make a big difference. But, $40,000 seems like a lot of money to me, yk? I tend to freak out when my debt hits between $1,000-$2,000. (That's not counting our car payment, of course - but we're never buying new again. It was the right choice this time, because of the way various factors came together, but it's a lot of money!)

 

I hadn't thought about student loans. I don't know if they're considered to be consumer debt or not. I'm going to look at that. If student loans are factored in, it seems much less...bizarre.


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#4 of 51 Old 11-15-2012, 04:06 PM
 
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We have that much in student loans (US dollars) & many people owe much, much more for school for themselves or their children.


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#5 of 51 Old 11-15-2012, 06:48 PM
 
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I don't think that student loans are considered "consumer debt."  Consumer debt in my experience is debt acquired through consumption (purchases).  In the states, student loans are considered more of an investment because you are supposed to be getting long term returns on your loan.  Student loans are treated much like property mortgages.  People can repossess your car and your television and foreclose on all your material possessions, but they can't take away what you have learned.  Property ownership is not considered "consumer debt" either.  Consumer debt can range from credit card purchases to non-credit card credit at stores to loans that  are not considered home improvement loans via a bank mortgage.  I do know people who have taken out non-bank-home improvement loans to improve their properties (kitchen and bathroom upgrades/new deck/new roof).  Those kinds of loans add up fast.  In many cases, though, people borrow against their mortgages for home improvements - but I don't think that is considered "consumer" debt per se - it still falls under the whole property ownership/mortgage thingy.  Consumer debt involves outright purchase with no appreciation on the purchase (in most cases).

 

For a while in our early days, DH and I carried a high credit card debt on one of our cards because of DH's dental work.  He had to have a lot of emergency dental work that was not covered by insurance and we racked up 10k easily.  Thankfully we were able to pay that off, but I think our situation was typical.  From what I've read, non-insurance related medical costs are the number reason for high credit card debt in the states.  Now, that doesn't mean that there isn't problem with other consumer debt such as purchasing beyond one's means.  Sometimes I'm rather shocked at what people can "afford."  DH and I tend to be incredibly conservative in what we buy - we were probably the last people in our town to own a tube television - which died two weeks ago at the tender age of 17!  Credit card debt is a huge problem in U.S., but it is multi-faceted.  Too many people have too many reasons why they rack up credit card (which is considered consumer) debt.  I can't really judge because as I stated above, DH and I used our credit cards for things that were important to us at the time (that didn't involve expensive handbags or luxury travel) and my bigger concern is the what I consider the usury by credit card companies that keep people in debt forever.  But that's a subject for another time and place.  :)


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#6 of 51 Old 11-15-2012, 07:57 PM - Thread Starter
 
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I don't think that student loans are considered "consumer debt."  Consumer debt in my experience is debt acquired through consumption (purchases).  In the states, student loans are considered more of an investment because you are supposed to be getting long term returns on your loan.  Student loans are treated much like property mortgages.  People can repossess your car and your television and foreclose on all your material possessions, but they can't take away what you have learned.  Property ownership is not considered "consumer debt" either.  Consumer debt can range from credit card purchases to non-credit card credit at stores to loans that  are not considered home improvement loans via a bank mortgage.  I do know people who have taken out non-bank-home improvement loans to improve their properties (kitchen and bathroom upgrades/new deck/new roof).  Those kinds of loans add up fast.  In many cases, though, people borrow against their mortgages for home improvements - but I don't think that is considered "consumer" debt per se - it still falls under the whole property ownership/mortgage thingy.  Consumer debt involves outright purchase with no appreciation on the purchase (in most cases).

 

I read the rest of the article, and it didn't mention student loans. I think it's loan/instalment purchases (eg. a car), lines of credit and credit cards.

 

For a while in our early days, DH and I carried a high credit card debt on one of our cards because of DH's dental work.  He had to have a lot of emergency dental work that was not covered by insurance and we racked up 10k easily.  Thankfully we were able to pay that off, but I think our situation was typical.  From what I've read, non-insurance related medical costs are the number reason for high credit card debt in the states.  

 

Yes - I know that's a big problem, but it's really not very common here. People can, and do, have high medical costs (certain prescriptions, dental work, etc.), but I don't think it's common enough to drive that kind of average debt, yk?

 

Now, that doesn't mean that there isn't problem with other consumer debt such as purchasing beyond one's means.  Sometimes I'm rather shocked at what people can "afford."  DH and I tend to be incredibly conservative in what we buy - we were probably the last people in our town to own a tube television - which died two weeks ago at the tender age of 17!  

 

lol.gif My television died in 2007, at the age of 16. We couldn't afford to replace it, but did so, anyway...because it was just a few weeks after Aaron died, and we were leaning on the tv pretty heavily, for all kinds of things (comedies to cheer us up, kids shows to distract the kids so I could rest and recuperate, etc.). I was horrified at the cost (mind you, our "new" tv was/is also bigger than I'd have preferred...but the next smaller size was only marginally cheaper and a bigger screen helps dh, as he has poor vision). I'm hoping this one will last at least as long as my last one.

 

 

Credit card debt is a huge problem in U.S., but it is multi-faceted.  Too many people have too many reasons why they rack up credit card (which is considered consumer) debt.  I can't really judge because as I stated above, DH and I used our credit cards for things that were important to us at the time (that didn't involve expensive handbags or luxury travel) and my bigger concern is the what I consider the usury by credit card companies that keep people in debt forever.  But that's a subject for another time and place.  :)

 

Credit card interest rates and practices are appalling - no doubt about it.

 

I was talking to my mom and stepdad about this, and my stepdad did point out that this probably isn't net debt. Some of these people could have five times as much in assets, but are carrying debt, for whatever reason, in large amounts, as well. My best guess is that this reflects a lot of car loans, in addition to whatever else is driving it.

 

I used to see articles about how much less debt was being carried by the average Canadian than the average American. I have my doubts that this is still the case.


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#7 of 51 Old 11-15-2012, 09:10 PM
 
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I believe that there are some murky court rulings in the U.S. about whether federally-backed student loans qualify as consumer or non-consumer debt. It's significant if you are dealing with bankruptcy but otherwise, I'm not sure it matters from the point of view of a household budget. Whether or not student loans meet the technical definition of consumer debt, the debtor has a monthly payment to meet and interest accruing. 

 

Add in typical household expenses like a car payment or two, a credit card balance for a vacation, and a home equity line of credit for a renovation project and it starts getting easier to understand how household debt levels rise.

 

Last month we had an unexpected car repair, a deposit on a school trip and long-planned family celebration and we just got our credit card statement. Ouch! Thankfully, we're not carrying any other debt. We'll manage those expenses fine. It did make me realize how quickly a household can get into debt.

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#8 of 51 Old 11-16-2012, 06:43 AM
 
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 It did make me realize how quickly a household can get into debt.

Yes, crazy quick. We got into major debt when dh became unemployed. Buying food and other necessities adds up really fast when income stops. You're stuck putting things on credit so the available cash you have can go towards bills that can't be put on credit. Then it takes years to get back out of when income resumes. 

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#9 of 51 Old 11-16-2012, 08:18 AM
 
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I live where all your fellow BC neighbors are shopping and creating all this debt. Our medium sized town in OVER RUN with BC shoppers. If you look at the license plates of cars at at big box store parking lots, about 2/3 are BC. They fill up their carts, some two carts with items that I can't image them really needing. I sometimes get caught up in "sales", when everything is such a good deal and I have to get it then (traveling or one day sale). I imagine this is how BC shoppers feel here. 

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#10 of 51 Old 11-16-2012, 08:28 AM
 
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Yes, crazy quick. We got into major debt when dh became unemployed. Buying food and other necessities adds up really fast when income stops. You're stuck putting things on credit so the available cash you have can go towards bills that can't be put on credit. Then it takes years to get back out of when income resumes. 

 

I will go ahead and confess that this happened to me.  Hopefully so someone will learn from my mistakes!!!  I ended up with close to that amount of debt Storm Bride mentioned...in my name only!  XH had about half that much in his name, just because his credit wasn't as good as mine.

 

Disclaimer: when I met XH, I had no debt.  But little things kept happening.  

 

He was an "entrepreneur" and always looking for the "next deal."  Well, the next deal never came.  As time went on, I was paying off more and more things for him.  For example, he had to sell his car at a loss because he couldn't afford the payments and I got a credit advance to pay the difference.  He got a "real job" (which of course, wasn't a real job) and we had to move.  He charged the moving expenses to my credit card.  He swore to me up and down that what he was working on was a "done deal" and he was going to make somewhere between $35,000 and $50,000.  We went above our wedding budget counting on this money.  The deal fell through four days before the wedding. 

 

We never went on a honeymoon or vacations.  We never gave Christmas or birthday gifts.  We lived in the most crap-tastic rental ever.  We didn't even have a car payment for almost a year.

 

But like a PP mentioned, I had to charge things to credit so I had money for bills that couldn't be charged. 

 

I could go on and on.  But basically, having only one person working and the other person spending/living like they were working...doesn't add up.  It was bad...very bad. 

 

I'm happy to say that once I was no longer with XH, I was able to pay down all of this debt.  Never, ever again!


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#11 of 51 Old 11-16-2012, 08:42 AM
 
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My initial impulse is to be boggled by that figure, too (based on my own lifestyle), but then I think of lifestyles of people I know and the number sounds perfectly reasonable.

 

In the US at least, 2+ cars is standard. I don't have a clue as to the average cost, but I know people, who are obviously doing ok but aren't "rich," who buy $18k-$20k cars (that's about a Subaru - more than a Honda, less than a Mercedes). If you've got two payments, you've pretty much got that debt load right there. And it seems to me that almost EVERYBODY has a car payment - DR said in a book that was written years ago the average car payment was, what, $375/month? It may well have gone up since then. And I think a $375/month payment is in the range of an 18k vehicle.

 

Next you've got your HELOCs. I don't know who is crazy enough these days to do this anymore but before the crash of a few years ago, a ton of people got HELOCs and upgraded their kitchens and bathrooms and put in pools and built three car garages and whatnot. At the time it was practically considered a wise financial investment. "It's stupid to let your money just sit there in equity when it can be working for you!" was the sentiment of the time. While I assume mortgages are not included in consumer debt, I would definitely think HELOCs were. And I assume new HELOCs are way down, but I also doubt that the majority of people opening a HELOC in 2007 was able to just pay it off when the economy crashed. So that could be a significant factor.

 

I agree $38k is high for an average credit card debt alone, but factor in a couple of Subarus and a much regretted kitchen reno in 2007, on top of maybe $8k in cc debt, you're easily skewing the average in that direction.

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#12 of 51 Old 11-16-2012, 09:29 AM
 
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Cars.  Your average new car has got to be near 20 000.  


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#13 of 51 Old 11-16-2012, 10:32 AM - Thread Starter
 
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Cars.  Your average new car has got to be near 20 000.  

 

Our minivan was $21,000...brand new, but bottom of the barrel. We got a Dodge Grand Caravan, with no extras (not even roof racks, or floor mats). And, it was the best deal around when we bought it - saw a '96 Odyssey (admittedly, a much better van) with over 100,000 km on it, listed for $18,000. I don't know about other cars, but I'd say an average cost for a new minivan (factoring in all the different brands and such) is probably closer to $30,000 than $20,000.

 

I'm sure a lot of it is cars.

 

I think what boggles me isn't so much the number. I can see individual people getting into that kind of debt - as people on this thread have mentioned, sometimes people have to use their credit just to buy food!. It's really the fact that this is the average debt (and I doublechecked - it's per capita, not household) that blows my mind. When you factor in families like my neighbours, who use no credit, families like mine, who generally only have four figure debt (we were at five figures for two years of our loan), and families who use credit, but pay it off in full every month, it means there are people out there - probably a significant number of them  -with debt that dwarfs the $38,800 number.

 

I'm truly not trying to criticize individual families. Everyone's situation is different. I just think an average debt this size speaks to some societal issues, yk? (It's also apparently almost 1.5 times the national average.)


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#14 of 51 Old 11-16-2012, 10:57 AM
 
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It does sound like a high number at first glance, but they would have to remove car loans from that debt figure for it to be more meaningful to me. 

 

We will always have a car loan. We have 2 cars, and drive each one for 10 years, so every 5 years when we pay off the newer one, we replace the older one. For us, that's a reasonable type of debt, like having a mortgage. We don't put it into the same category as credit card debt.

 

Our new cars are typically in the low-$30k range, so having an overall consumer debt of close to $38,000 wouldn't be unheard of for us, especially between Christmas (when we might charge some stuff) until we get our tax return in February (and pay off our credit card).

 

But it also wouldn't mean that we're irresponsible or frivolous spenders -- we have a plan in mind all along, and always have a $0-balance credit card come February, so it's not like we're in a downward spending spiral or anything. 


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#15 of 51 Old 11-16-2012, 11:17 AM - Thread Starter
 
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It does sound like a high number at first glance, but they would have to remove car loans from that debt figure for it to be more meaningful to me. 

 

We will always have a car loan. We have 2 cars, and drive each one for 10 years, so every 5 years when we pay off the newer one, we replace the older one. For us, that's a reasonable type of debt, like having a mortgage. We don't put it into the same category as credit card debt.

 

Our new cars are typically in the low-$30k range, so having an overall consumer debt of close to $38,000 wouldn't be unheard of for us, especially between Christmas (when we might charge some stuff) until we get our tax return in February (and pay off our credit card).

 

But it also wouldn't mean that we're irresponsible or frivolous spenders -- we have a plan in mind all along, and always have a $0-balance credit card come February, so it's not like we're in a downward spending spiral or anything. 

 

hmm...hadn't thought of that (I don't know anybody who buys new cars, as a rule - our minivan is the only new car ever purchased in my family of origin). But, I re-read the article, and it was per capita, so for a couple, it would be closer to $80,000.


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#16 of 51 Old 11-16-2012, 12:12 PM
 
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You're right; that is mind blowing. It would be interesting to track down what that includes, though. Maybe it would make more sense then.
 

Hmm, this says around $15k per (US) household, so your figure is very high!

http://www.csmonitor.com/Business/new-economy/2012/0609/Credit-card-debt-is-down-but-don-t-cheer


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#17 of 51 Old 11-16-2012, 12:13 PM
 
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hmm...hadn't thought of that (I don't know anybody who buys new cars, as a rule - our minivan is the only new car ever purchased in my family of origin). But, I re-read the article, and it was per capita, so for a couple, it would be closer to $80,000.

I do agree that is pretty nasty.

 

Dh worked in banking for a number of years, and saw numbers like this fairly often.

 

I think it is common for people to focus on cashflow and not total debt.  As long as they can handle the cash-flow, they are ok with everything (the issue with this, as almost everyone finds out, is that if anything goes wrong - unemployment, higher interest rates, you end up very screwed very quickly).

 

I also think delayed gratification is an issue, as are cases of entitlement "I deserve this new car, new kitchen, new…etc."

 

People who concern me are those who spend like crazy but are stressed about the state of their finances.  I  feel sad ( and sometimes frustrated) that they are trapped in a cycle of overspending that they cannot seem to break.  If they are ok with their spending level and finances, I have no issue with their high debt.  At the end of the day as long as they pay their debts and keep everyone clothed, fed and housed, it really is not my business if they go to Disney every year on credit.  


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#18 of 51 Old 11-16-2012, 12:39 PM
 
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Next you've got your HELOCs. I don't know who is crazy enough these days to do this anymore but before the crash of a few years ago, a ton of people got HELOCs and upgraded their kitchens and bathrooms and put in pools and built three car garages and whatnot. At the time it was practically considered a wise financial investment. "It's stupid to let your money just sit there in equity when it can be working for you!" was the sentiment of the time. While I assume mortgages are not included in consumer debt, I would definitely think HELOCs were. And I assume new HELOCs are way down, but I also doubt that the majority of people opening a HELOC in 2007 was able to just pay it off when the economy crashed. So that could be a significant factor.

 

I agree $38k is high for an average credit card debt alone, but factor in a couple of Subarus and a much regretted kitchen reno in 2007, on top of maybe $8k in cc debt, you're easily skewing the average in that direction.

 

Well on the one hand, the idea of using your home equity to take out a line of credit is, I think, yet another aspect of the consumer madness that has permanently settled in the US. It's kind of nervy, I agree.  However, a kitchen upgrade, a pool, a garage expansion, they all add real re-sale value to the house. But, of course, that doesn't matter when the whole value of your house tanks and you can't sell it if you want to. 

 

We did a heloc in 2005 and upgraded our kitchen.  It made all the difference in the world for me. The existing kitchen was miserable and inadequate, and being a sahm trying to cook from scratch as much as possible, I figured the expense of an upgrade was worth it. And it was so worth it. I use and love this kitchen to death.  We can no longer afford to live here -notable, I know-  so we're selling.  Our agent says the kitchen sold the house.  People love it. The rest of the house is 'eh', but the kitchen is lovely.

 

I think if you're going to use and enjoy your pool while you're living there, then it isn't exactly a waist waste, you know?  Gosh darn it, you'd think I'd know which word is which by now.

 

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I'm truly not trying to criticize individual families. Everyone's situation is different. I just think an average debt this size speaks to some societal issues, yk? (It's also apparently almost 1.5 times the national average.)

 

I think this is a great conversation.  And you're right on, this high lights societal issues.  Buying houses that We couldn't afford is one of the biggest drivers of this Great Recession here in the US. 


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#19 of 51 Old 11-16-2012, 02:16 PM
 
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However, a kitchen upgrade, a pool, a garage expansion, they all add real re-sale value to the house. 

 

I don't understand how this works. It used to make sense to me, but then when we bought our current home, the appraisal was directly related to the selling price of similarly-sized homes in my neighborhood, regardless of upgrades. So, since the same-floor-plan house around the corner sold for $X two months prior, our house was appraised at that same price, and the bank wasn't willing to fund a loan for any higher -- that was that. So now I don't get how people actually get back that extra resale value when they do expensive upgrades.

 

In your case, it sounds like having a remodeled kitchen made the difference between being able to find a buyer and not, so I get that part, but were you literally able to tack on the expense of the renovation to the selling price and recoup it? Or do some buyers just get a loan for the appraised price (less down payment) and then pay the additional price for the upgrades out of pocket? 

 

Forgive me if this is a stupid question -- it's just something that baffled me during our last home purchase, and I still haven't figured it out. 


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#20 of 51 Old 11-16-2012, 02:52 PM
 
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Our debt has never been 38000, but when it was high, it was mostly little things.  The latte factor.  We were living beyond our means and slowly but surely built up credit card debt doing things like eating out, paying bills we didn't have cash for, and in my case I bought a bunch of stuff for a home business thinking it would sell at a profit (It was donated 6 years later.) Once we realized we were in over our heads with debt we decided to get a loan to pay it off and just have the one lower interest rate to deal with. Well, the bank wouldn't give us a loan for that small an amount, and they ended up giving us a 10 000 line of credit.  huh.gifWow. That's almost predatory. We couldn't resist spending it. It was there, it was so hard for us not too. It was just irresponsible. DH went on parental leave and I was a SAHM so we did not have enough money for our day to day needs and used credit.  Then when he was back at work he got injured, and WCB would not cooperate with us, and we had nothing except credit cards to use.... so within a few years we had spent every bit of credit we had, around 15 0000.  My story probably makes us look pretty bad, but we learned a lot.  We started our family on one small income and wanted to live like we had two.  We were very fortunate to have family help to get out of debt and now we have no credit at all and manage to do okay.  I am so glad I can't spend money I don't have, because my willpower is not very strong!  I can see how it happens to people and gets worse.  If we had been able to buy a new vehicle as well, our debt would have been in the average range.  

 

Are students loans considered consumer debt? A lot of people I know have big student loans and that probably factors in.

 

Living beyond our means is one reason why we didn't weather dh's unemployment better. Eating out, paying bills we didn't have cash for, carrying more and more over each month.  It didn't matter if the car needed emergency repairs and we'd just spent $500 on Christmas. Put the repairs on the card and we'd get to the bill eventually.  Dh lost his job in 2010. For a number of other reasons, we eventually were drowning, so we filed bankruptcy. We've put the house up for short sale and have a buyer. Just hoping the mortgage company will take the offer, so we can walk away and start over. 

 

Our AmEx card debt I think was at $8,000, and our bank credit card was at $11,000 when we filed. Yay! Below the average consumer debt in B.C! bag.gif

 

I'd really like to use the cash-in-envelopes system of budgeting. I like seeing cash in an envelop for groceries, for clothes, for gas, and if there's nothing in the envelop then you do without. But dh won't get on board.

 

I do like the security of being forced to use only what's in the bank account right now. Don't buy it unless you've got the money for it.


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#21 of 51 Old 11-16-2012, 03:17 PM
 
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We got into massive consumer debt because my dh got a great promotion, which required we move to a new city.

This was at the very beginning of the recent housing diaster, and neither we nor the company realized that was happening. His move package included a few months of housing allowance so we could sell our home, none of us realizing it would take 18 months to sell the house and that the eventual sell price would be a fraction of what owed, forget all about what we had already put into the house.

During that time, we lived as cheaply as possible, renting a small townhouse. But we where in a hcl area. We were paying living expenses in two cities, including utilities, snow plowing, grass cutting, ect for a house we weren't in.

We used credit cards to stay afloat. It was horrible.

We hadn't done anything "wrong". We pride ourselves on living beneath our means. My dh was promoted.

That was several years ago, and we have paid everything off.

but everything has pros and cons  shrug.gif

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#22 of 51 Old 11-16-2012, 03:28 PM
 
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Well on the one hand, the idea of using your home equity to take out a line of credit is, I think, yet another aspect of the consumer madness that has permanently settled in the US. It's kind of nervy, I agree.  However, a kitchen upgrade, a pool, a garage expansion, they all add real re-sale value to the house. But, of course, that doesn't matter when the whole value of your house tanks and you can't sell it if you want to. 

 

We did a heloc in 2005 and upgraded our kitchen.  It made all the difference in the world for me. The existing kitchen was miserable and inadequate, and being a sahm trying to cook from scratch as much as possible, I figured the expense of an upgrade was worth it. And it was so worth it. I use and love this kitchen to death.  We can no longer afford to live here -notable, I know-  so we're selling.  Our agent says the kitchen sold the house.  People love it. The rest of the house is 'eh', but the kitchen is lovely.

 

I think if you're going to use and enjoy your pool while you're living there, then it isn't exactly a waist waste, you know?  Gosh darn it, you'd think I'd know which word is which by now.

 

 

I think this is a great conversation.  And you're right on, this high lights societal issues.  Buying houses that We couldn't afford is one of the biggest drivers of this Great Recession here in the US. 

 

I doubt anyone will disagree that a kitchen upgrade that really adds to your life is a great thing. As long as you can afford it.

 

I am not so sure I can get onboard with the idea that it is a sound financial decision to put it on a HELOC because you couldn't otherwise afford it. Why not? I think we've seen our answer pretty clearly.

 

1) If you lose your job or are downsized or your costs increase a bit (medical bills, car repair, anything), and your calculations to make the HELOC were based on your best scenario budget, you're sunk. (If your calculations kept in mind that you had $20,000 in the bank as an emergency fund and you could live on 50% of your salary, ok, but that is not the typical scenario is it?).

 

2) Home upgrades may or may not increase the value of your home. They are not investments, though, in the true sense - you might hope to recover, say, 80% of what you put into it, but not, say, 120%. But you might not even recover that. Ask anyone living in Detroit how much they got back from their kitchen reno. When the entire housing economy went into the toilet, plenty of people lost their so-called "investments" because the housing market just doesn't work like that. Ask any real estate agent, few people understand how it works. They think their house is worth what they paid plus what they put into it plus inflation or something like that. When how it really works is the house is worth whatever somebody will pay for it.

 

To some extent, home improvements are actually just maintenance. If your kitchen hasn't been updated since 1972, that's obviously going to make your house difficult to sell. So, houses have to be updated from time to time, and that's just expected, rather than gravy that you're owed back in cash.

 

If you go above and beyond? It's still subject to what people will pay. If your house has all the fanciest upgrades possible, depending on your area you might be stuck holding the bag because home buyers are trying to economize.

 

Pools are not investments. Some people like pools. But it's generally seen as a liability. There's legal liability, pool maintenance and so on.

 

If your kitchen is outfitted to the max, it may be a liability in a depressed economy. Does the kitchen eat up energy costs? Are there a lot of electronic components that require potentially expensive repair (or, these days, repair is as expensive as replacement anyway). Even if it technically doesn't, buyers may be turned off by the lavish impression.

 

So, no, putting a home improvement that you can't swing in cash on a HELOC so you can get it today instead of in a couple of years is not good financial advice. Save up the cash in a couple of years and pay for it that way. That way, you won't be stuck holding the bag on 20 years of payments if the market crashes and you have to move. You won't be stuck holding the bag if you lose your job before you pay it off. You won't have to pray for the best case scenario. Sure, upgrade your kitchen. But do it because you can afford it and because you will enjoy it, but not because your equity is sitting there "doing nothing" (keeping you from being homeless if things go south is a lot more than nothing) and not because it "increases your home value."

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#23 of 51 Old 11-16-2012, 03:44 PM
 
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I don't understand how this works. It used to make sense to me, but then when we bought our current home, the appraisal was directly related to the selling price of similarly-sized homes in my neighborhood, regardless of upgrades. So, since the same-floor-plan house around the corner sold for $X two months prior, our house was appraised at that same price, and the bank wasn't willing to fund a loan for any higher -- that was that. So now I don't get how people actually get back that extra resale value when they do expensive upgrades.

 

In your case, it sounds like having a remodeled kitchen made the difference between being able to find a buyer and not, so I get that part, but were you literally able to tack on the expense of the renovation to the selling price and recoup it? Or do some buyers just get a loan for the appraised price (less down payment) and then pay the additional price for the upgrades out of pocket? 

 

Forgive me if this is a stupid question -- it's just something that baffled me during our last home purchase, and I still haven't figured it out. 


I see what you're saying, that's a great point.  I'm repeating what our mortgage broker said, 10 years ago!  I don't think he was referring to how much the bank appraises it for. He was referring to how much buyers are willing to pay for. Note that was before the housing market crash, back when banks were handing out big loans to people who didn't really qualify.  So basically the value of a house = whatever buyers were willing to pay for it.


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#24 of 51 Old 11-16-2012, 04:05 PM
 
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Just to further a little bit on what Seashells said (sorry StormBride - it may seem off topic but I think it is relevant to debt!):  I live in a town full of co-op apartments (won't get into the specifics of co-op ownership, but it generally entails apartment owners of very old buildings - not new condos).  We don't really have a real estate in problem in NYC, we have a housing shortage in a lot of respects (especially affordable housing).  When DH and I moved into our pre-war apartment (built in 1935) we literally ripped out the old original (and impractical) kitchen and modernized it.  Let me tell you, the original kitchen was the stuff of 1930s Germany.  Cool in its day but totally not functional now.  

 

Anyway, we paid cash for the supplies and did it ourselves.  Our goal was to maximize space in the kitchen and we didn't install a dishwasher and other "required" stuff  like stove hoods, etc.  So, ten years later, I'm told by real estate people that my apartment (as much as we love it and put love and effort into it) won't be an awesome sale because we didn't install items like a dishwasher and other things that apparently apartment buyers are looking for.  Granted, we didn't spend a lot of money because (a) we didn't have a lot of cash anyway, (2) we weren't even thinking about this kind of stuff when we excitedly bought in the first place and (3) we did it ourselves which cut costs a lot.  Our apartment value has increased simply because real estate values have increased in the area, not because what we invested originally.  We're lucky in the respect, but I have another story:  (LOL)

 

My next door neighbor invested heavily in a new kitchen and bathrooms (we're talking granite and subway tiles and all kinds of bells and whistles).  They have a different unit than we do so the values are not the same.  They recently had their apartment appraised and the value was much less then they paid originally for the apartment.  They were appalled.  The reason being:  the unit below them was bought through word of mouth and not for market value and the bank was only valuing their apartment for what the value of the apartment below them was sold!  The value of their apartment had NOTHING to do with what they had invested in upgrades.  So it goes to show, like Seashells indicated above, that home upgrades are a risky business.  People take that risk, they incur debt, and sometimes they win but a lot times they lose.  Unless you're into house-flipping and know the ebb and flow of the market, upgrades sometimes only benefit the person making the upgrade.  It's true that an upgrade to update will keep the house current and sellable, but honestly I don't think it adds value (as in added value) in the long run.  Perhaps it keeps the house competitive.

 

Edited for horrible grammar (not practically perfect, but hey, it's Friday night).

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#25 of 51 Old 11-16-2012, 07:30 PM - Thread Starter
 
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I'm not as good at budgeting as I used to be. My ex sabotaged me constantly for years, and I think I eventually kind of snapped...too many years of pinching pennies until my fingers bled, and having nothing at all to show for it, yk? But, I've always been really, really freaked out by debt. So, even though we make some dumb decisions and do carry a bit of debt (we clear it - except for the car loan in the last couple years - at least once a year, but do have a bit of creep), it never gets very high. Except in the months right after Aaron's death, I don't think it's ever been higher than one of dh's paycheques.

 

I used to be smarter. Now, I do things like go ahead and get a hotel room for our tenth anniversary, even though we had to put it on credit (and pay for overnight babysitting...at a family rate, at least). A few years ago, I wouldn't even have considered paying for a luxury like that on credit.

 

I was thinking that I don't really see anything in the lifestyles around me that would explain this debt...and then I thought about what weliveintheforest called "the latte factor". There do seem to be a lot of people treating themselves to little stuff a lot, and buying whatever clothes catch their eye, needed or not, and eating out, I guess, if you add in a moderately pricey car, that's all got the potential to add up a lot.

 

I haven't budgetted adequately for Christmas, and I'm going to overextend a little. I can already tell. But, when we finish our car loan (January - yay!!), I'm going to do some serious crunching. That article freaked me out, and I don't want any more debt creep.


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#26 of 51 Old 11-16-2012, 07:47 PM
 
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I wonder if parents taking loans for their kids' college tuition counts as consumer debt.

 

 

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hmm...hadn't thought of that (I don't know anybody who buys new cars, as a rule - our minivan is the only new car ever purchased in my family of origin). But, I re-read the article, and it was per capita, so for a couple, it would be closer to $80,000.

 

I wonder how they're assigning debt for this statistic.... If a married couple has two cars, and therefore two $25k loans, they probably applied for both loans together and have both of their names on both loans (and in some jurisdictions, your spouse in on the hook for the loan even if you applied for it separately)... so does that contribute to the statistic as two people who have $50,000 in debt? Or do they divide each debt by the number of names on the loan?

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#27 of 51 Old 11-16-2012, 07:51 PM
 
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I'm not as good at budgeting as I used to be. 

Me, neither.

 

I have always budgeted for a purpose - usually to save money and get something I want.

 

We earn ok money now (and are in a low cost of living area) so there is no need to budget and save to get what I want.  I can usually just afford it.  I could probably have way more money in the bank, though, if I budgeted and saved for thrifts sake.

 

I also think some of it comes down to aging.  I know I will not be around forever, so I do get myself stuff or experiences I want.  I don't break the bank for them, nor am I very materialistic, but I if i want to splurge on a decent hotel, I am going to!  I know some older people get very budget oriented - my MIL scrimped and saved for years as she was worried about her retirement (despite her excellent pension).  I think money and aging can go either way.


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#28 of 51 Old 11-16-2012, 09:53 PM - Thread Starter
 
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I wonder if parents taking loans for their kids' college tuition counts as consumer debt.

 

 

 

I wonder how they're assigning debt for this statistic.... If a married couple has two cars, and therefore two $25k loans, they probably applied for both loans together and have both of their names on both loans (and in some jurisdictions, your spouse in on the hook for the loan even if you applied for it separately)... so does that contribute to the statistic as two people who have $50,000 in debt? Or do they divide each debt by the number of names on the loan?

 

I'm curious, too. It was just a newpaper article, and a few of the details weren't totally clear. I do know they said the national (that's Canada, not the US) is $26,000. (I've rounded both the national and provincial down, even though the Provincial figure should be rounded up.) So, something's going on here in BC. It may just be the high cost of living in certain parts - eg. Metro Vancouver - that's driving it. I'm still having trouble wrapping my brain around those numbers, though. Of course, dh and I don't ski, and we don't go to hockey games - that probably helps keep us under control. 

 

I saw a house listing today that kind of blew my mind, even though I know what our market is like. It's on a street I've spent a lot of time on (in my youth, at least). It's not a great part of town. It's not really close to any amenities. The house is an old one that's been renovated. They're asking $1.25 million. They'll probably get it.


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#29 of 51 Old 11-17-2012, 04:14 AM
 
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I'm in Greater Vancouver, too and find that number hard to believe.  Where did they get those numbers and what sample size? Could it be possible that this is an average for those who do have consumer debt?  After all more than 50% of all credit card users pay off the balance every month.  The video called it "non-mortgage: debt so that would for sure include student loans, car loans, home equity loans. 

 

*A lot of numbers can look very different depends on definition.  Like last year I heard average family income for Canadians is as high as 90k.  When studied in more detail it turned out the definition of "family" ruled out all singles, widows and untraditional families.  So that number really represent middle and upper middle class' average income.


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#30 of 51 Old 11-17-2012, 08:31 AM - Thread Starter
 
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It definitely includes car loans. The article specified that the largest portion is car loans/instalment loans, not credit cards or lines of credit...although it did state that those are growing, too.

 

More than 50% of credit card users pay off the balance every month? Where did you get that stat? I've never heard it, and it doesn't match my experience at all. I know one person who pays in full each month. (I don't, although I did for several years.) I used to do bookkeeping, and fewer than a quarter of my clients paid in full. I've just never heard that before. I'm glad to hear it, though.


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