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As lending gets tighter, Canadians face threat of credit card trap: Don Pittis

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This column is part of a series we’re calling Debt Nation looking at the state of consumer debt in Canada.

Even after a decade of rock-bottom borrowing costs as low as two per cent, agencies that help Canadians overwhelmed by debt say their clients are still loading up on some of the most expensive debt in the market by borrowing on their credit cards. 

Now as interest rates rise and sources of borrowing shrink, financial literacy experts worry that many more consumers will fall into the same trap of using that high-cost debt to cover day-to-day expenses.

Recent research by for-profit insolvency advisers BDO Canada Limited, conducted by the polling firm Ipsos, puts some colour on the Canadian credit card debt burden.

Read more stories in our Debt Nation series:

Contrary to BDO’s advice, Canadians did not use record low interest rates as an opportunity to pay down debt.

“We used the low interest rate environment to acquire more debt to acquire things we wanted,” president Doug Jones said. That included real estate. But as house prices rose, people borrowed against that real estate to buy other stuff such as cars, renovations and holidays. And now that interest rates have begun to rise, existing debt will become an increasing burden.

Making ends meet

While credit card interest rates are high, usually in the 20 per cent range, those rates are agreed between banks and consumers in periodic contracts, and so tend not to fluctuate with short-term swings in rates. But for consumers who are already spending everything they earn, rising rates on other sources of borrowing such as mortgages, cars and lines of credit make the easy availability of credit cards a dangerous temptation.

“As the cost of borrowing goes up, your ability to make ends meet is going to become lessened,” Jones said. The BDO survey shows signs this is already happening for many Canadians, he said.

“People were saying, ‘Well, we’re going to have to make some sacrifices here in order to make our budget work,’ and one of the sacrifices they made was, 27 per cent of them said: ‘I’m not going to pay off my credit cards.'”

According to the Canada Mortgage and Housing Corporation, high property prices mean the majority of new homebuyers have already maxed out their budgets. As rising borrowing costs eat further into disposable income, avoiding the credit card debt trap will only become more difficult. (Jonathan Hayward/Canadian Press)

According to one of Canada’s largest non-profit credit counselling agencies, by the time people become so overwhelmed by debt that they reach out for help, they typically owe between 55 and 60 per cent of their non-mortgage debt on credit cards.

“The average person who comes into credit counselling has generally, on average, six or seven creditors,” said Patricia White, national president of Credit Counselling Canada, the parent organization of 18 not-for-profit agencies across the country. “And very likely there are three or four cards in there.”

An everybody problem

White says there are more expensive borrowing traps than credit cards, including payday lenders. And Jones says he encountered one young couple with a bad credit rating who had a car loan with a rate of 42 per cent.

But the credit card trap is by no means just a poor person’s problem, White says, partly because so many of us use cards to get loyalty points. Paying with credit cards has been normalized for people of all ages. The problem, she says, is running up debt is easy; paying off debt is hard.

“I think it’s an every-kind-of-person problem,” she said.

Paying by credit card has become increasingly convenient. All you have to do is tap. But financial expert Terry Goodtrack says if you can’t pay off your credit card bill in a month, you are living beyond your means. (Don Pittis/CBC)

And according to Dan Kelly, president of the Canadian Federation of Independent Business, that extends to entrepreneurs who commonly run up debts on their credit cards with the expectation, or hope, that they can get through a difficult period.

Kelly said he did it himself when he was starting out as a consultant. And he says he can hardly criticize business people who do everything they can, including mortgaging homes and going into personal debt, to keep their business afloat.

Many successful businesses go through such phases, he says. Banks are often reluctant to lend money during hard times, but taking on credit card debt requires no one’s permission.

“It certainly can be a lifesaver in certain emergencies” he said. “You’re setting up a coffee shop and your espresso machine breaks and you need to buy a new one and you need to do that today. You don’t have the money to do it. So you can put it on a credit card.

“But you do that too many times and you can drown in the debt, and obviously the interest that is charged can be overwhelming.”

Rainy day fund

And that slide from tiding yourself over during a bad time to overwhelming debt can happen so easily, especially if people lose a job or face a serious illness. With interest rates so low and banks anxious to lend for so long, many Canadians came to think it is normal to always be in the hole. But as interest rates rise, being in debt becomes more and more expensive, especially if you resort to credit cards.

Instead, Terry Goodtrack, president of the Indigenous business support group AFOA Canada, says everybody should have a rainy day fund.

But advice like that is only really useful in advance — before it starts pouring. It’s less helpful for those who are already struggling to pay off debt.

Goodtrack, who is helping to advise the federal government on a plan to increase financial literacy that goes into top gear in November, which the government has designated Financial Literacy Month, worries that people have become too comfortable with credit and credit cards.

“The problem with that is that easy access gets some people into trouble in the long term,” Goodtrack said. “If you can’t pay off your credit card in a month, you’re living beyond your means.”

Keeping back a reserve for hard times, running a carefully balanced budget and always paying off your credit card is sound advice, but for many Canadians struggling to make ends meet, it is easier said than done.

As the Canada Mortgage and Housing Corporation revealed last week, high property prices mean the majority of new homebuyers have already maxed out their budgets. As rising borrowing costs eat further into disposable income, avoiding the credit card debt trap will be harder than ever.

Follow Don on Twitter @don_pittis

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Couple from Toronto buys dream home in Mushaboom

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MUSHABOOM – A couple who lived and raised a family in downtown Toronto developed a five-year plan in 2015 to purchase their dream home.

In September they moved into the home – located on Malagash Island in Mushaboom on Nova Scotia’s stunning Eastern Shore – that met and exceeded their best dreams for their retirement.

The Camerons, Bruce and Tanya, decided in 2019 they would explore the Maritimes to see what real estate was available to become their potential retirement home. In the spring of 2020, during a global pandemic, the real estate boom hit their city, and they were hearing the same for Nova Scotia. Our province was their first-choice for attaining their desire for an entirely different lifestyle – away from the busyness of the city.

“We had $300,000 to $350,000 as a home value in mind to buy. Our semi-detached located off Danforth in Toronto was priced at $850,000. We wanted to come out ahead, so we would be secure in retirement,” Tanya said.

Their century-old home had prime location near the subway and GO Transit Line for a great 13-minute commute downtown.

“We enjoyed our community,” explains Bruce “… we had great neighbours, young children around and street parties – lots of social activity.”

Bruce says, “Our agent suggested a starting quote of $899,000. We did not do any renovations and only some staging. Fifty couples went through and we received four significant offers. Six days later we sold – with zero conditions – and a price of over a million dollars. We just requested a closing of September 2020 to get the kids off to school – which we got.”

The couple got more than they had anticipated.

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Rabobank Announces Leadership Changes in U.S., Canadian Offices

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NEW YORK, Dec. 16, 2020 /PRNewswire/ — Rabobank, the leading global food and agribusiness bank, has appointed two of its top executives, Tamira Treffers-Herrera and Robert Sinescu, to become Co-Heads of North American Client Coverage, positioning the Bank for future growth in the region.

Treffers-Herrera has also assumed the role of Vice Chairperson and Head of the Atlanta office, where she additionally oversees Rabobank Mexico, which is led by Eduardo Palacios. Sinescu is the Head of the Chicago office, and also oversees Rabobank Canada, led by Marc Drouin, who was recently appointed as Canada’s General Manager.

Treffers-Herrera and Sinescu report to David Bassett, Head of Wholesale Banking North America, the Bank’s corporate and investment banking business for the region based in New York.

“Both Tamira and Robert have a demonstrated history of strong leadership, operational excellence and passion for our clients,” Bassett said. “Their broad experience and deep sector expertise will be invaluable in delivering dynamic results for clients while accelerating our growth trajectory in North America.”

Each office will have an even greater focus on key Food & Agribusiness sectors and clients: The Chicago office will drive growth in sectors including Dairy, Farm Inputs and Grains & Oilseeds, which are also key areas of focus for the Canada office. The Atlanta office will focus heavily on sectors such as Animal Protein, Beverages, Sugar, and Supply Chains, which are important sectors in Mexico as well.

“Rabobank is fully committed to our clients throughout North America, and we believe our new sector-focused coverage will improve our ability to provide knowledge-based, value-added solutions that benefit our clients,” Bassett said.

Treffers-Herrera was most recently based in London as CEO of Rabobank’s European Region from 2016-2020, where she took the organization through Brexit. Prior to that, she worked in the Atlanta office from 2002-2016. During her tenure in Atlanta, Treffers-Herrera served as Global Sector Head – Consumer Food & Beverages, and prior to that she was a senior banker for a portfolio of large beverage and consumer foods clients. She holds a Bachelor of Arts degree from the University of Kentucky, a Master of Arts from the Patterson School of Diplomacy and International Commerce and has studied at The University of Chicago Booth School of Business and Harvard Business School.

Sinescu has been with Rabobank for over 21 years and was previously General Manager of Rabobank Canada, where he oversaw all operations, business development, commercial strategy and relationships with regulators. In addition, he continues to serve as CEO of Rabo Securities Canada Inc. Prior to Canada, he was a senior banker, Head of Corporate Banking, European Sector Head for Sugar, and a member of the Management Team for Rabobank France. He holds a Bachelor of Science in Business from the Bucharest School of Business, a Master of Business Administration & Management and a Master of Science in Banking and Corporate Finance from Sorbonne University in Paris, and has studied at Brown University.

Drouin has worked with Rabobank’s Canadian team for more than nine years and most recently served as a senior banker, Head of Rabobank Canada’s AgVendor Program and a member of Rabobank Canada’s Management Team. He brings extensive wholesale banking experience within the Dairy, G&O, CPG and Supply Chain sectors. Drouin holds a Bachelor of Arts degree from McGill University and a Master of Business Administration in International Finance, Marketing and Management from the Schulich School of Business at York University.

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Real Estate

Greybrook Realty Partners & Marlin Spring Brand Jointly Owned Asset Manager – Greyspring Apartments

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TORONTO, Dec. 14, 2020 (GLOBE NEWSWIRE) — Greybrook Realty Partners and Marlin Spring are pleased to announce the new branding of their jointly owned investment and asset management firm, Greyspring Apartments. With a portfolio of more than 2,000 units and CAD$375 million in assets under management, Greyspring Apartments is focused on the acquisition and repositioning of multi-family assets throughout Canada.

The new name and branding is an important step in Greyspring’s evolution as an independent operating business. Formed in 2018 by long standing-partners Marlin Spring and Greybrook Realty Partners, Greyspring Apartments was established with the goal of building a leading asset management firm with a robust portfolio of residential rental real estate assets in primary and secondary markets across Canada.

Greyspring’s talented team of real estate, asset management and finance professionals is overseen and guided by the Management Board, whose members include Benjamin Bakst, CEO, Marlin Spring; Elliot Kazarnovksy, CFO, Marlin Spring; Sasha Cucuz, CEO, Greybrook Securities Inc.; Peter Politis, CEO, Greybrook Realty Partners; Chris Salapoutis, President & COO, Greybrook Realty Partners; Ashi Mathur, President, Marlin Spring; and Karl Brady. In addition to his role on the Management Board, Karl Brady leads Greyspring Apartments as its President. 

“We are pleased to announce the official name and branding of a business we formed with our partners at Marlin Spring a few years ago,” said Peter Politis, CEO, Greybrook Realty Partners. “Greyspring has been diligently focused on the execution of strategic value-add programs across its portfolio that are improving the quality of housing for tenants and overall asset values. For Greybrook investors, expanding from our core business in real estate development to the value-add space through Greyspring, has allowed us to provide our clients with investment opportunities that diversify their real estate investment portfolios.”

“Marlin Spring and Greybrook have partnered on many residential real estate projects in recent years,” said Benjamin Bakst, CEO and Cofounder, Marlin Spring. “To a great extent, Greyspring illustrates our approach to partnerships. We believe in, and strive for, responsible growth through deepening our relationships with our trusted partners. With Greyspring, we’ve formalized our focus on providing better and more affordable living experiences for Canadians. This vision aligns with our mission to deliver exceptional real estate value to all our stakeholders with an uncompromising adherence to our core values.”

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