The president of a financial planning firm that specializes in helping clients get out of debt says most financial services firms are neglecting clients with credit problems.

“The rest of the industry has ignored them,” says John Podlewski, president and CEO of Burlington, Ont.-based Debt Freedom Canada Inc., “because they’ve been known as being a non-profitable situation.”

Podlewski, however, sees opportunity in working with such clients, who represent a large and growing market.

Consumer debt levels in Canada have soared recently to record levels. The average total debt per household in Canada has climbed to 140% of disposable household income, according to the Vanier Institute of the Family’s annual Current State of Family Finances report, released in January 2009.

The author of the report, Roger Sauvé of Ottawa-based People Patterns Consulting, points out that the average total debt load per household reached slightly less than $90,900 by the end of 2008, up by 68% in real terms since 1990. That rate of growth is more than six times faster than the increase in incomes over the same period.

“[Debt is] increasingly becoming a problem for Canadians,” says Laurie Campbell, executive director of Credit Canada, a non-profit credit-counselling organization based in Toronto.

As more Canadians realize that they need help in managing debt, demand for financial advice regarding debt management is soaring. Debt Freedom has seen demand for its services increase by 400% in the past 18 months.

The firm has slightly fewer than 300 consultants in British Columbia, Alberta, Manitoba, Ontario and New Brunswick, and is aiming to add another 300 in the near future.

Podlewski says his firm’s average client is 25 to 55 years of age with children, is employed, has an “average” credit score and is roughly $30,000 to $40,000 in debt.

These types of clients are approaching Debt Freedom because their needs are not being addressed by others in the financial services industry, he adds.

Debt Freedom helps clients get rid of their debt with two proprietary debt-elimination programs. Once clients have freed up cash to invest, the firm caters to their other financial planning needs, such as insurance and asset management.

It is critical for the rest of the industry to address debt as part of comprehensive financial planning, according to Podlewski: “Advice is not selling an insurance policy. Advice is starting from the ground, getting the right data, looking at every aspect of a family’s life.”

Campbell agrees. She fears that advisors may not be considering all aspects of a client’s financial circumstances before they recommend investments.

“The one thing I’m concerned about is that financial advi-sors really take the time to look at a person’s budget,” she says. “Can they afford to invest? Or are they so crippled with their own expenses right now that they need to resolve a few issues on their own, first?”

One of the most common factors leading to problematic debt levels is simply overspending. “It’s ‘keeping up with the Joneses,’ falling into this consumerism society that we live in,” says Campbell, “and spending what they can’t afford.”

A lack of financial literacy is another key issue at the heart of the problem. A recent survey by the Certified General Accountants Association of Canada found that Canadians frequently don’t understand the effect of carrying debt and the costs associated with servicing it. In addition, many Canadians fail to create a budget or keep track of their expenses.

“People can have financial illness and not be aware of it,” says Podlewski. “Most of the people we visit have no idea when they’re spending, how they’re spending and how they got to where they are.”

These financial struggles are not limited to low-income segments of the consumer market. In fact, debt can be more problematic for higher-income individuals, who tend to owe proportionately larger amounts than their lower-income counterparts.

“Their debt loads are just astronomical because their incomes are very high,” says Campbell. “It is an economy of scale.”

Warren Baldwin, regional vice president with T.E. Financial Consultants Ltd. in Toronto, who works primarily with high net-worth clients, says he occasionally sees debt problems among members of his target market.

“I certainly do meet people who have debt, and sometimes there are structures we have to bring to the table to help them clean that up,” says Baldwin, a certified financial planner and registered financial planner.

@page_break@Most often, Baldwin says, the problem is driven by overconsumption: “It’s somebody who has a compulsive need to buy things.”

Baldwin helps clients carrying debt to develop a program to repay it as quickly as possible. In some cases, he helps clients consolidate their debt to reduce the rate of interest they’re paying.

This strategy is especially popular in the current environment of low interest rates.

“It’s a premier time to consolidate right now,” says Podlewski. “[Clients] won’t find a better time in Canadian history to do that.”

But the low interest rate environment may also be contributing to the problem by prompting Canadians to take on more debt.

In the 12 months ended August 2009, residential mortgage debt grew by 7.1%, the Canadian Asso-ciation of Accredited Mort-gage Professionals reports.

Although that represents a softening from growth of 10.2% in 2008, the growth rate is surprisingly strong against the backdrop of lower home-buying activity and fewer housing starts throughout the recession.

Jim Rawson, regional manager with mortgage brokerage firm Invis Inc. in Toronto, has noticed a particularly strong pickup in demand for mortgages in the past few months:

“Demand is back,” he says.

Some consumers, says Campbell, are even feeling a sense of urgency to get a mortgage and enter the housing market while rates are so low.

“There is that feeling of pressure,” she says. “They thought if they didn’t get in right away, with interest rates being as low as they are, they wouldn’t get in.”

This trend is fuelling concerns that consumers may be taking on debt hastily, without preparing for an eventual hike in interest rates.

Rawson says many clients seeking mortgages are first-time buyers who don’t have a strong grasp of what they can realistically afford.

“There is a lot of counselling to be done with people that come in for mortgages,” he says.

Sauvé, who is currently compiling the Vanier Institute’s 2009 report, expects to see total average debt per household hit $100,000 by the end of 2009 or early 2010.

Amid these indications that the consumer-debt problem could become worse before it gets better, Podlewski expects demand for advice in debt management to continue to rise.

To meet this demand, Debt Freedom is aiming to have 1,000 consultants in its network by the end of next year. IE