Crushing Debt

David Trahair is a Chartered Accountant, speaker and author. He currently operates his own public accounting firm and gives seminars on his books to CAs in B.C., Alberta, Saskatchewan, Manitoba and Ontario. He frequently appears in the media, contributes regularly to financial publications, and is the author of several books, including the bestsellers Enough Bull and Smoke and Mirrors. He was also a director of Credit Canada, a non-profit organization dedicated to helping people deal with credit problems, for six years. www.trahair.com

• Acknowledgements ix Introduction 1Where I am Coming From 2A Word about Books 3The World is on the Edge of a Cliff 4It Ain't Gonna be Easy, But There is Hope 5Why I Wrote This Book 6What You Will Learn 7Chapter 1—Debt: The Snake in the Closet 10My Own Story 10Marie's Story 12Chapter 2—Why is the Consumer Debt Crisis So Bad? 16Human Nature 16The Environment 20A Financially Illiterate Consumer is a Bank's Best Customer 24Consumer Financial Education: Why is It Missing? 24Look at What Happened in the United States 25Chapter 3—The U.S. Subprime Mortgage Disaster 26The Perfect Debt Storm 27My Trip to Slavic Village, Cleveland, Ohio 28Why the Crisis Spread 30Houses "Under Water" 31The Current U.S. Consumer Debt Situation 32Could the U.S. Subprime Mortgage Crisis Come to Canada? 34Chapter 4—Canada's Government Debt 37Canada's Debt 38Accumulated Versus Annual Defi cits 40You Say "Deficit," I Say "Loss" 40How Big is Canada's Debt? 41Canada's Annual Defi cit History 41Federal Debt or Accumulated Deficits 42Future Federal Debt Projections 42Ratio of Federal Debt to Gross Domestic Product 45A Word about Provincial and Territorial Accumulated Deficits 46Canada's Debt versus the Rest of the World 47Debt to GDP May be a Misleading Measure 48MGI's Five-Part Framework to Assess the Sustainability of Leverage 49A Personal Health Check 50A Health Check of Canada 50One More Measure: Canada’s Debt Per Capita 54What’s It Like to be Bailed Out 55Perpetual Government Defi cits 56Is a Foreign Government Default Inevitable? 56What We Need to Do Now 58Chapter 5—Canada’s Big Six Chartered Banks 59Why are They So Worried about Household Debt? 61An Analysis of the Big Six Canadian Chartered Banks 62How Much Debt Do the Banks Themselves Have? 66For A Bank, A Billion Dollar Profi t is Peanuts 66Return On Equity—A Good Measure? 68What about the Debt-To-Equity Ratio? 69Why Debt is more Popular Than Equity 70Did Canadian Banks Get a Bailout? 71CMHC Financial Situation 73Conclusion 74Chapter 6—Canadian Household Debt Levels 76Canadian Average Debt Levels 77The Line of Credit Trap 79Been There, Done That 79Chapter 7—How to Get Out of Personal Debt 81It's the Principal of the Matter 82Canadians' Love Affair With Debt 83The Options to Crush Your Debt 86Paying Off Your Debts Yourself 86Are You a Spender or a Saver? 91Would You Like to Earn $100 by Staying at Home and Watching TV? 91Credit Counselling: Debt Management Program (DMP) 92Shirley's DMP Success Story 94Consumer Proposal 97Bankruptcy 98Choosing Which Route to Take 102Chapter 8—Your Credit Score 109What is a Credit Score? 109How to Find Out Your Credit Score 109The Credit Reporting System is not Perfect 111Your FICO Credit Score 111What Determines Your FICO Credit Score 112What Your FICO Score Ignores 115Individual Credit Ratings 115Warning: The Following Information Could be Dangerous 116Credit Score Secrets You Need to Know 117A Good Credit Score Can Save You Big Money 121Wrap-Up 121Chapter 9—Gaining Control Over Your Money 123How to Track Your Spending and Find the Fat 123Analyzing Your Spending Results 132How Much Do You Make? 134How Big a Mortgage Could You Get? 135The Gross Debt Service Ratio (GDS) 135The Total Debt Service Ratio (TDS) 136How Much Mortgage Can You Get? 136The Government Tightens the Insured Mortgage Rules 137What about Regular Uninsured Mortgages and Other Debt? 139Conclusion 140Resources 142Index 145