This week, RBC released their Consumer Outlook survey, and it shows that more and more of us are worried about our debt load. I think that’s great news in that we’re finally getting real and seeing that borrowing money does not work, and being broke is not a fun way to go through life.

Fundamentally, it’s a real problem when we stay optimistic about our debts. THAT is what gets us broke! When we talk ourselves into buying this or that on credit, thinking that the payment isn’t that big a deal, we’re on a slippery slope of trouble. We block out the fact that it might take two minutes to spend it, but it’ll take years to pay it off!

A way better mindset is to be pessimistic about our debts and optimistic about our incomes. Instead, the survey shows that we believe we can become debt free reasonably quickly, but we’re worried about our job security. To me, that’s the wrong way around. We should be pessimistic about our finances. It’s what makes us realize maybe we can’t pay that payment for years, what happens when rates go up, I’m going to be in trouble if I carry my credit card at the max, and so on.

Yet, on the income side, 24% of us are worried about a job loss. To put it in perspective, however, the unemployment rate is 8.5%. But 5.5% or so is full employment. We know that from just a year or so ago. So, the real unemployment rate is around 3% and 24% of us worry. That’s a total disconnect between the two!

On the optimistic side, thinking we’ll pay off our debts pretty quickly, the numbers are even more surprising:

18-34 year olds expect to be debt free by age 43.
35-54 year olds think it’ll be at age 59. Yet, the group that’s closest to that age, those age 55 and older, think it’ll be at least until age 66! So a heads up to those under age 34: It ain’t going to happen! No way, no how – honestly. Sorry to be the bearer of bad news, but the reality is that you’ll likely have a mortgage payment of 25 to 30 years which right there, alone, makes it impossible.

And almost everyone under age 54 has a car payment. The average car payment is $480, financed over seven years. What’s a seven year old car worth? Exactly. So what happens then? We finance another one and go on another seven year broke cycle. Skipping one of these seven year finance cycles and putting that money into an investment account or RRSP will be over a million dollars when you retire. Instead, we buy something that’s worth less and less each month and keep paying and paying.

Keep in mind that every time you commit to a payment, you’re voluntarily taking a pay cut! That payment has to be made, so it’s money you no longer get to keep! It may be that $200 credit card payment, $400 car, the financed furniture, or whatever. Yet, if our boss wants to give us a pay cut we go insane. But we do it to ourselves every time we borrow!

One more thing which will become really important to all of our finances over the next year or so: The RBC survey showed that only 57% of us think interest rates will go higher. Excuse me? Rates are the lowest they’ve been in generations. So when they move, where do they HAVE to go? Up! And every line of credit and every variable mortgage will take some big jumps. The It’s Your Money book has a chart that asks how ready we are for the next rate increase. Anyone with just $150,000 of debt being hit with a 3% rate increase will spend another $329 after tax for nothing but more interest. And if we say we’re broke now, where’s that $329 going to come from?

What can we do? The really easy basics that 90% of us won’t do:
-Stop borrowing – period. When you’re in a hole, it makes sense to stop digging. Debt is NOT your friend.
-Do a written budget each month to know, not guess where your money is going
-Stop going to a restaurant unless you work there
-If your car is financed – sell it, no matter what you owe. That saved payment alone will likely get all your other debts paid off within a year. Drive a $2,000 beater for a couple of years until you’re debt free.
-Pay yourself first: Have some money taken right off your pay, or out of your bank account towards savings. If you don’t see it, you can’t spend it.
-Leave the credit cards with a relative. Out of sight, out of mind, and start paying in cash or by debit card.
-Get an emergency savings account of two weeks income so the next crisis will just be an inconvenience.