Tag Archives: loan vs. line of credit

We’re Going Broke At a Slower Pace

Newly released averages from TransUnion, one of the credit bureaus shows what we talked about recently. We’re increasing our borrowing, but at a slower pace. Great. Kind of like someone on a diet just having three pieces of cake, instead of four. We’re still growing our debts which are already significantly too high.

On average we owe $3,600 on our credit cards. But remember that about half of Canadians pay their balance in full – hurray. So the rest of us owe over $7,200 – and that should be a concern.

Lines of credit are now over $35,000 on average. But think back not that many years ago. We used to get a personal loan if we wanted to borrow $10,000 for renovations or $15,000 for a motorcycle. Well, making a loan costs the bank about $200 to $300 in setups, credit reports, etc. So they moved us to lines of credit. Now a loan had a three, four, or five-year term of fixed payments. Make all the payments and you were done with this debt. Yet, a line of credit makes us the loans officer. We can pay as little as interest only (newsflash: Most do) or as much as we want. We were sold on convenience and hardly anybody gets an actual loan these days, with the exception of vehicles. Now we can pay as little as we want and the banks don’t have to keep making new loans.

The downside is that now, on average, we take more than a decade to pay off our lines of credit. That’s assuming we don’t just roll them into a mortgage refinance. It used to be four years of loan interest, now it’s a decade or more of payments. Great for the lenders, very bad for us. Without much of a rise in incomes and all the other monthly payments, it’s just natural to fall back on the least amount we can pay – and we do.

Banks really do have the brightest marketing minds in the country. They’re so great at selling us something that they make a profit on and helping us with our going-broke plans.