What Game of Thrones can teach us about debt

If you are a Game of Thrones fan you will recognize the phrase, "winter is coming."

It serves as a warning that those who fail to prepare for change will suffer the consequences.

That's how I feel about debt.

For years, we have been told higher interest rates are coming and we need to get our financial houses in order. Unfortunately, many Canadians have not heeded the warnings, which has resulted in a worrisome debt-to-household income ratio of 169.1 per cent.

The Bank of Canada has increased interest rates by a full per cent since July of 2017, with economists — and the Bank of Canada itself — expecting more rate hikes over the next year or two.

No one can escape higher rates

Anyone who has a loan, line of credit, mortgage or credit card tied to the bank's prime rate will be negatively impacted with every interest rate hike. 

For many Canadians, this means that a higher percentage of their disposable income will be used servicing their debts rather than paying for essentials like food, shelter and utilities.

While B.C. homeowners carrying mortgages are the most affected by the higher rates, everyone will suffer. The extra interest paid by homeowners and businesses will be passed down to consumers in the way of increased rents and cost of goods.

No one can escape the effects of higher rates — even those who don't have a loan or mortgage.

Not all debt is bad. Without it, I wouldn't have been able to buy a home or start a business. When I speak to young people about debt I explain that "debt and drugs" have a lot in common.

When used wisely, debt can improve the quality of life. It can also be a trap that is difficult to escape from.

When financial institutions offer credit, my advice is to think twice before accepting it. Like many things in life, moderation is the key.

Pay down debt

Purchasing items may feel great at the time, but remember "winter always comes," and if you can't pay that bill, the penalties on credit cards are harsh with interest rates of 19-29 per cent.

Use credit but pay it off in full. Otherwise stick to cash.

When rates started to rise in 2017, I began to worry about my own cash flow. I sold some assets, paid down debt, and locked in my mortgage for seven years.

I am paying more interest — 3.24 per cent versus 2.72 per cent — but for the next seven years I have price certainty and peace of mind, which was a trade off I was willing to make.

Rates are still relatively low, so if you haven't already, I would consider simplifying your finances, particularly if your cash flow is just meeting your needs. You may need the help of a professional such as a financial planner or credit counsellor, but that's nothing to be embarrassed about.

Don't let debt control you

The power and influence of debt is often underestimated.

Continuing with the Game of Thrones analogy, the fictional continent of Westeros is divided by civil war, and although we won't know who ends up ruling Westeros until next year, I believe the ultimate winner won't be any of the families waging war.

It will be the Iron Bank.

The bank will control the realm without shedding a drop of blood with their weapon of choice being debt. Because the bank funded all the armies, it won't matter who wins the war, the "winner" is going to heavily indebted to the bank.

The greater the debt, the larger the influence the bank will have, which is why I believe the Iron Bank is the ultimate winner who will wield all the power.

Let's learn from Game of Thrones. Take steps to control your debt before it controls you.

This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.