The debt that the average Canadian household owes is now the second-highest in the world after Greece.
And while that’s not a problem in the U.S., Canada is struggling with a massive debt load.
That’s due to the country’s record-breaking debt to the IMF in the last decade.
And that’s where the good news comes in.
The federal government announced Friday that it is cutting off its credit lines to the world’s second-largest economy by more than $6,500 for debt servicing.
That will save the average household roughly $1,100, or $400 less than what it would have been if it had stayed on its current course.
The cut in government support comes just two months after the government announced a major cut in corporate and personal tax rates for the first time in years, and it’s also one of the biggest reductions of any Canadian government.
It’s a welcome move from Prime Minister Justin Trudeau, who has been pushing for a debt-free economy for decades.
“The country is not going to be able to pay its debts and that’s a real concern,” said Paul Martin, chief economist at Canadian Imperial Bank of Commerce.
“The economy is very much dependent on the world, so you can’t do everything in one go.
And we have to look at it over time, over a period of time.”
But there are many reasons why Canadians may not be able afford to pay their debts.
First, a lot of Canadians have already taken on debt and are not going back.
And the U of C’s figures are based on the government’s own figures for household debt as of March 31.
So, while many Canadians are making small monthly payments, they’re not contributing to the larger overall debt pile.
And because of that, the government is essentially giving out loans to households that are likely to default.
“It’s very difficult for most people to get on the housing ladder, let alone get a mortgage, and they’re in an even worse position when it comes to their credit scores,” said Martin.
“They’re not going into debt as much because they’re paying down the debt and not borrowing.”
Martin says Canada’s rate of household debt is one of its worst among the G7 countries, and the government has been doing a lot to help Canadians.
It is also spending billions of dollars on infrastructure.
“They’ve been doing more to encourage Canadians to borrow and to be responsible borrowers,” he said.
“We are seeing some of the greatest credit growth in the G8 countries.
That is very, very good news for the average consumer, and we hope that this will be a good signal to the rest of the world that Canada is a country where you can be responsible and repay your debt.”
The good news isn’t just for Canadians.
For many other countries, the cut will help to stem a wave of defaults and debt defaults that has been building for years.
In fact, the average debt in the United States is now nearly four times larger than Canada’s debt, according to the Federal Reserve Bank of New York.
So if you’re worried about the government not being able to help you pay your debts, this is definitely a good time to consider the federal government’s cut.