Loans

Most of us have been in this situation at least once. You go out with a friend and when the bill comes your friend says they can't afford it. Despite your misgivings, you pay the bill only to find out later that your friend bought the new iPad2.

What do you do in those situations? A friend, who wishes to remain anonymous, said, "I have a problem right now with a friend like that, only his thing is that he is poor, doesn't want to work because it will interfere with his 'planning' for his multi-million dollar idea. But he is in huge debt trouble and is always asking people for money to 'invest' in his business -- the business he hasn't started yet."

The number of financial complaints made to Canada's Ombudsman for Banking Services and Investments (OBSI) reached a record high in 2010, despite the fact that the worst of the global financial crisis had passed.

Last year, 1,024 complaints were made to the OBSI, which is an independent financial dispute resolution service for consumers and small businesses.

Complaints rose 3.4% in 2010, building on the enormous 48% jump in 2009 at the height of the financial crisis. The new figure marks the first time in the organization's 15 year history that complaints have risen above 1,000.

The steady decline in mortgage rates combined with slow house price appreciation has made the past few months some of the most affordable in recent years to buy a home in Canada. In fact, a report by the Royal Bank of Canada shows that housing affordability improved for a second straight quarter at the end of 2010.

However, as the Canadian economy continues to improve, the experts say that these attractive buying conditions will not last.

Canadians have begun to react to fears about record debt levels with household debt rising at its lowest rate in 15 years in November. But while growth has slowed significantly, it is yet to reverse the rising trend, meaning the record-breaking run of mounting debt continues.

The good news is that Canadians are starting to take better care of their finances. Benjamin Tal, deputy chief economist at CIBC, said household credit, once adjusted for inflation, rose by only 0.27 per cent in November. Meanwhile, data for the third quarter of last year showed that household credit rose at its slowest pace since 2001. The number of unpaid credit card bills has also stabilized at below one per cent.

Despite the improvement, Mr. Tal says there are still some concerning developments in Canada's debt situation.

You put money into a Registered Retirement Savings Plan (RRSP), which automatically reduces your taxes and Bam! Instant Tax Refund (tm). The tax break is why most of us make our first contribution to an RRSP, and that motivation continues every year we're earning an income and want to defer tax payments.

The good news is that, if you're strategic, there are even more benefits that can be gained. As your portfolio gets larger or more diverse and your life situation changes, there are a few RRSP quirks you may want to take advantage of.

Spousal or Common-Law RRSP

You can set up a spousal or common-law partner RRSP. You can then contribute into your spouse or common-law partner's RRSP; you get the deduction, but they own the plan. Generally, the partner with the higher income will contribute; this allows a higher tax reduction when contributing and a lower tax bill when your spouse or common-law partner withdraws the money, as they will presumably be in a lower tax bracket.

Excess Contributions

You may inadvertently put in too much money into your RRSP. If so, withdraw the amount as soon as possible. There are taxes assessed for any amount over $2,000 in excess of your limit; the tax is one per cent of the excess for each month the excess exists. This will accumulate quickly. After a year, 12 per cent or almost one-eighth will be taxed away.

In an attempt to curtail rising household debt, the Federal government has announced a second major tightening of mortgage lending rules -- a change that could affect up to 20,000 new mortgages and cause house prices to fall in the short-term.

According to media reports, Finance Minister Jim Flaherty said Monday that three main changes would be made to the mortgage rules: mortgages with amortization periods greater than 30 years will no longer qualify for government-backed mortgage insurance, down from 35 years; the refinance limit on a mortgage will be reduced to 85 per cent of the home's value, down from 90 per cent; and Ottawa will no longer insure home equity lines of credit (HELOC).

At first glance, student loans seem nothing short of magical. The government or bank advances you thousands of dollars so you can go make something of yourself.

But students need to read the fine print more carefully. In my experience, as graduation -- and the collection date -- nears the debt begins to weigh on you. And when the bill comes due it's usually a hefty one to pay off.

In 2004, Statistics Canada reported that post-secondary student debt rose 76 per cent from 1990 to 2000, the CBC reports. And that was over ten years ago. Since then, tuition fees have jumped up 25 per cent, which means the average price tag for a four-year university degree now reads $17,000.

Are you in the market for a bachelor's degree? Expect a debt of $19,500. College grads can count on owing about $12,600. Tack on interest and higher education becomes a verified nightmare.

How's a student to turn the red ink to black? Read on for some tips for future and existing debtors.

Whether you're buying a new or used car, if you can't pay for it in cash you'll be borrowing the money to pay for it.

That means you'll be paying off a car loan in monthly payments. If you can afford the monthly payments a dealer offers you, your financing deal's a good one, right?

Wrong. If you just take whatever financing deal you're offered by the dealer, you could end up paying not just hundreds, but thousands of dollars you didn't need to.

Here are eight simple steps you can take to ensure you pay only what you want to pay and can afford:

In a speech yesterday to the Economic Club of Canada, Bank of Canada Governor Mark Carney repeated the warning that Canadians are carrying too much debt.

"The crisis is not over, but has merely entered a new phase," Governor Carney said, cautioning that "low rates today do not necessarily mean low rates tomorrow. Risk reversals, when they happen, can be fierce: the greater the complacency, the more brutal the reckoning."