Spring break shouldn’t send you into debt, experts warn

While this year's long, cold winter has many Canadians yearning for a holiday somewhere warm, consumer experts warn it's a bad idea to put it on a credit card without a plan to pay it off.

Average Canadian going on a March-break vacation spends $2,600

By Evan Dyer, CBC News Posted: Mar 13, 2015 5:21 PM

While this year’s long, cold winter has many Canadians yearning for a holiday somewhere warm, consumer experts warn it’s a bad idea to put it on a credit card without a plan to pay it off. (iStock)

After months of relentless winter, commercials advertising Caribbean getaways can sound pretty tempting — whether or not Canadians have the cash to pay for a holiday.

Canadians spend billions of dollars on spring getaways every year, and nearly 120,000 people will pass through Toronto’s Pearson airport by the end of today, most on their way to points south.

Swen Shannon is on his way to Ocho Rios, Jamaica, flying out of Toronto.

“We definitely wanted to get away. And it was worth the investment. Well, hopefully when the trip’s over we’ll realize it was worth the investment,” he said.

Shannon says he’s budgeted for the cost. But not everyone does, says Jeff Schwartz of Consolidated Credit Counseling Services.

Schwartz says he’s noticed a worrying trend of people using credit to pay for their time in the sun.

“Taking a vacation is definitely falling in the category of a want, not a need,” he says. “Do they have a plan, if they’re taking on debt, do they have a plan to get out of that debt in the short term, instead of carrying it on their credit cards for decades to come?”

Borrowing for consumption a bad idea

Household consumer debt is at record levels in Canada. Two factors driving that are historically low interest rates and historically high house prices that make people feel rich.

The average Canadian March-breaker will spend about $2,300 on a trip south, according to a poll done by CIBC in 2014. That’s very close to the average credit card debt for Canadians under 30, according to credit reporting agency TransUnion (older Canadians carry an average balance about three times that amount).

BMO economist Benjamin Reitzes says that borrowing for consumption, as opposed to borrowing to buy assets, is almost never a good idea. But he says he expects interest rates to remain forgiving.

“It’s attractive right now. And the reason debts are as high as they are, is because rates are as low as they are. Consumers are just reacting to that incentive to borrow,” he says.

And with the long winter most Canadians have had, “I would sympathize with them because I’m tired of it too,” Reitzes says.

Canadians are using their plastic like never before, but are also honouring their debts: even though credit card debt is at record highs, TransUnion says credit card delinquency is at record lows, with less than one account in 300 defaulting.

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