Canadian Personal Debt Concerns Paralleling America's

Rising interest rates have been a concern for potential home buyers, lenders, and investors in the United States in the last few months. On Thursday, Canada's Credit Counselling Society detailed the same concerns for America's amiable bordering nation to the north.

For the first time in more than a year, Canada's central bank, the Bank of Canada, has raised its federal funds rate, the interest rate that affects all other interest rates in a nation, as it sets the overnight interest rate that regional and local banks must pay to receive an influx of cash from the central bank. There is another possibility of a rate hike again in early September.

Like their American neighbors, whom they are known to criticize for living above their means, the Canadian people have been borrowing and spending a lot of money in the relentless pursuit of the good life. Canadians generally have a heavy debt load and a lot of mortgages out, including a lot of variable mortgages which start out with very low interest rates in the first couple of years but then become pegged to the bond market later on.

Acquiring a debt load in order to acquire what you want is not necessarily a bad thing. Economists call it "deficit financing". However, deficit financing cannot be undertaken and managed without reflection. Unreflecting borrowing or reliance on revolving credit, which is easy to fall into in good times when interest rates are low, leads to personal financial disaster.

Again mirroring the situation of its southern neighbor, Canada's average mortgage rate has shot up, going from 6% to 7.24% in the last 12 months. Some Canadians are finding themselves in over their heads with their mortgage load and other debts.

Canadian personal debt is up 27% from what it was in 2003.