Canadians carrying significant debt load should consider improving their financial situation while the economy remains strong. If a review of personal finances reveals that an economic downturn would result in a personal meltdown, it may be prudent to adopt a proactive approach. Predictions of burst real estate bubbles, rising interest rates, escalating energy prices and increased competition off-shore might herald economic slowdowns, so this could be a red-hot opportunity to take advantage of the current good times.

Statistics Canada reports that household net worth gains continued to be driven by equities and residential real estate and reached C$135,500 per capita in the third quarter of 2005, having accelerated (+2.3 per cent) through 2005. Increases in the value of residential real estate, driven by housing prices, were credited with making a significant contribution to the rise in household net worth.

This improvement, according to Statistics Canada, does not mean everyone is doing well:

• Increases in household assets were partially offset by higher liabilities. The growth in household consumer and mortgage debt continued to outpace that of personal disposable income. This resulted in a debt-to-income ratio of 108.0 per cent (an increase from 107.8 per cent in the second quarter) by the third quarter of 2005, meaning that Canadian households carry about C$1.08 in debt for every dollar of disposable income.

• Even with the strong growth in household net worth, the ratio of household debt to net worth remained flat at 18.1 per cent by the end of September 2005.

• The personal saving rate was below zero during the first eight months of 2005. [bulleted list ends]

A recent paper from the TD Bank Financial Group (TDBFG) entitled "In Search of Well-being: Are Canadians slipping down the economic ladder? " presents this conclusion: "[A] number of economic and financial indicators -- booming housing market, low borrowing costs, high employment levels -- leave the impression that Canadians are well off and their economic status is steadily improving. In an attempt to reconcile the data with the perceptions, we found that Canadian households indeed have cause for concern -- their economic well being has not advanced for many years."

Among the factors holding Canadians back financially is the lag between take-home pay and GDP growth. Between 1989 and 2004, real GDP per capita rose a cumulative 26 per cent, while real incomes per capita achieved only a 9 per cent gain. Based on inflation-adjusted GDP and after-tax incomes on a per worker basis, real GDP per worker rose by 22 per cent while real after-tax incomes per worker moved up only 3.6 per cent over the 15 year period. The TDBFG conclusion: "It's hard to make a case as to why households should be feeling better off knowing that individual after-tax incomes have not seen the gains of the economy."

Again, the reported increase in net worth was credited with generating a false sense of security: "The rise in net worth should give households a feeling of greater well being, but perhaps there is an asymmetry in how people view their assets and debt. For instance, a paper gain in the value of one's home might not seem as tangible as hard debt -- amounting to an unprecedented 120 per cent of after-tax incomes -- that must be financed, even if it's at low interest rates."

Who would benefit from a serious review of their current real estate and financial situation?

• Property owners living with barely-manageable monthly mortgage payments may be faced with tough financial decisions if property taxes keep climbing, heating costs go through the roof and interest rates are considerably higher on mortgage renewal.

• Owners of hard-to-sell properties do best in strong markets and are the first to have problems when real estate buying slows.

• Canadians faced with the rapidly-approaching expense of sending children off to university or of financing their own futures, may find more room to save if their debt load is reduced.

• If you expect to sell or buy in a year or two, invest time now in evaluating possible strategies with a local real estate professional who can work through comparisons for delayed action.

• Those who are living from paycheque to paycheque, who can only manage minimum payments against their credit card balances or who would see their net worth dramatically eroded if real estate values dropped even a few percent are examples of the financially vulnerable.

Credit counselling agencies offer debt management services at little or no cost. Their counsellors can explain financial alternatives and customize solutions that incorporate budget planning, money management strategies and debt repayment programs. These professionals are most useful when they are contacted before serious problems force their intervention with creditors.

Should you take a long hard look at your finances or contact a credit counselling agency to find help with the evaluation? If "yes" is your response to any of the following questions, then the answer is "yes:"

• Is it a struggle to make payments on time?

• Do you live paycheque to paycheque hoping nothing significant will go wrong?

• Do you use credit cards because you don't have the cash, but only make minimum payments on your debt?

Ignoring the signs of financial instability may seem the easiest approach today, but that lack of action may be a serious threat to future success. After all, if you make the effort now to gain solid financial footing, but the downturn never comes, won't you still be further ahead? "If only I had ..." is a frustrating way to begin your tales of your real estate and financial dealings.