Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Cancel Anytime
Enjoy Unlimited Digital Access
Canada’s most-awarded
newsroom for a reason
Stay informed for a
lot less, cancel anytime
“Exemplary reporting on
COVID-19” – Herman L
per week
for 24 weeks
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Clients hold a lot of ‘bad’ debt – such as a credit card balance with an annual interest rate of about 20 per cent – should be advised that paying it off first should be their priority.

skynesher/iStockPhoto / Getty Images

As Canadians’ debt levels rise, so too do their worries over how to repay these obligations while achieving other financial goals. For financial advisors, addressing the liabilities side of a client’s balance sheet is crucial – and that often requires a deep dive into the reasons behind the debt and a custom strategy to tackle it.

Kim MacDonald, investment advisor with MacDonald Advisory at Raymond James Ltd. in Edmonton, says the debt conversation has been coming up more often with clients because of factors such as divorce, challenges related to the rental real estate market in Alberta and greater borrowing as a result of low interest rates. The latter issue in particular, she says, is often a slippery slope.

“We know that we can have larger debts because it doesn’t cost as much to pay for our monthly or bi-weekly payments, but are we thinking ahead enough to know what we might have to pay if interest rates go up? That’s part of financial planning,” she says.

Story continues below advertisement

In the fourth quarter of 2019, the debt-service ratio for Canadian households – or the proportion of disposable income required to meet debt obligations – reached an all-time high of 15 per cent, with more than half going toward interest payments, Statistics Canada reports. And a recent poll from Canadian Imperial Bank of Commerce (CIBC) found that paying off debt was Canadians’ top financial priority for the 10th year in a row.

That situation is likely to become more dire as many Canadians may have to tap into debt to meet their short-term obligations during the COVID-19 pandemic.

With clients concerned about their debt levels, advisors should start by analyzing their liabilities before developing a plan, says Jamie Golombek, managing director, tax and estate planning, at CIBC.

“Once we determine what [the debt is], we determine whether we can put a strategy in place to either pay off that debt or, in some cases, not worry about it,” he says.

For situations involving “good” debt – for example, a mortgage incurred at a relatively low interest rate – clients are often advised to set aside some of their monthly budget to save for retirement in a registered retirement savings plan (RRSP) or tax-free savings account rather than focusing on paying off the debt, he says.

On the other hand, in situations in which clients hold a lot of “bad” debt – such as a home-equity line of credit or a credit card balance with an annual interest rate of about 20 per cent – clients should be advised to prioritize paying these off first, Mr. Golombek says.

In fact, he says advisors need to place a bigger emphasis on liabilities during conversations with clients rather than focusing solely on investments.

Story continues below advertisement

“A lot of advisors are focusing on the investments. ... But if you’re a client paying 20 per cent interest on your credit card, I don’t think you should be investing at all,” Mr. Golombek says. “Ultimately, if we can get you out of that situation, we can set aside more money in the monthly budget toward achieving the other real goals.”

Scott Evans, financial advisor at BlueShore Financial in Vancouver, agrees. He says advisors need to spend more time working with clients who are not paying down their high-interest debt and have insufficient plans for retirement.

“They’ve come to a point now at which maybe they’ve been carrying that line of credit for a while without making any savings [for] their retirement and they need some help with prioritizing,” he says. “Advisors can really show their worth and come up with the steps that are going to help them achieve their goals.”

As with all client situations, the process begins with creating a plan, Ms. MacDonald says. In cases that involve substantial debt, tailored solutions often lead to better results than textbook approaches, as the reasons behind that debt can be very different. For example, one client may have liabilities after dividing debts in a divorce, while another may be dealing with a gambling addiction.

Well-known strategies, such as the snowball method – in which individuals start by paying off smaller balances to gain momentum – may work for those who need an early win, she says. Others may only achieve success by making significant lifestyle changes.

In some cases, advisors may need to consider other approaches such as a consolidation loan or line of credit strategy that puts clients on a fixed monthly budget and debt repayment is included as a line item, Mr. Golombek says.

Story continues below advertisement

Some may be able to combine saving for retirement with paying down debt by using the refund generated from an RRSP contribution to pay a lump-sum on a line of credit, Mr. Evans says.

As it will ultimately be up to the client to prioritize debt repayment, strategies that work are almost always developed alongside clients, Ms. MacDonald says.

That allows individuals to visualize the impact of the different scenarios; stress test debt in higher interest interest-rate environments; provide a wake-up call to make behavioural changes, if necessary; and come up with solutions that work for their lifestyle.

“Working through these debt strategies using comprehensive planning software with the client is where we’re seeing results,” Ms. MacDonald says. “If they understand why they’re doing what they’re doing, then they almost feel a sense of relief.”

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to
Comments are closed

We have closed comments on this story for legal reasons or for abuse. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies