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Canadians today are carrying more debt than previous generations. Some debt is good debt. Other debt is bad. Then there is ugly debt.

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Good debt

Good debt helps you to purchase a home or a vehicle or investments. Business loans and education loans that help you increase your income are good, too. The majority of Canadian debt is good debt.

Of course, you should have a strategy to repay even good loans in full — either during the life of the asset or by the time you retire.

Unfortunately, too many Canadians are tempted by low interest rates to get larger loans on more expensive houses instead seizing the opportunity to aggressively repay the principal on their debts.

Rising interest rates

How would you react if interest rates were to rise by three percentage points? That would make average mortgage payments increase by $500 per month.

When asked that question in a 2015 BMO Wealth Institute survey on household debt, a quarter of Canadians said they could tighten their budgets to afford the increase. However, 16 per cent of Canadians felt that they could not afford the higher payments.