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With a debt-to-income ratio of 163.3, Canadian households are now juggling record levels of debt. Spurred on by low interest rates and the cheapest mortgages in decades, Canadians are finding it easy to borrow money and add to their already-existing debt.

Even with the current low interest rates, the Bank of Canada continues to warn Canadians against accumulating excessive debt. Housing sector imbalances, including debt, housing prices, and over-investment in properties, pose a serious internal threat to the Canadian economy. Despite a forecast of a bumpy economic ride, however, people have not shied away from adding to their debt. Indeed, last year Canadians added in excess of $80 billion of debt through mortgages, personal loans, and consumer credit cards.

The recent increase means the total debt carried by Canadians now tops $1.84 trillion, according to Statistics Canada. Almost two thirds—more than $1.1 trillion—is from mortgages; consumer debt, including credit cards, constitutes about $519 billion.

Earlier the year, Prime Minister Stephen Harper himself address the rising debt levels, saying, “There are some people who are overexposed, so we encourage people to exercise caution in terms of their borrowing.” While he expressed confidence in the economy and the housing sector in particular over the long term, uncertainties can leave a person—especially one carrying large debts—vulnerable to sudden fluctuations.

With the U.S. subprime mortgage crisis still fresh in our minds, predictions of a recession hitting the Canadian economy persist. After conducting a personal study, Vikram Mansharamani, a lecturer in the Program on Ethics, Politics &amp; Economics at Yale University and a senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, painted a dark picture of where Canada is headed. “Canada is in the midst of an unprecedented housing boom that seems likely to bust… Canada is now among the most vulnerable large economies in the world.”

Noting that the Canadian real estate market has not yet experienced a correction as happened in the U.S., Mansharamani believes such a correction is inevitable. With an estimate that housing prices are presently overvalued by as much as 30 percent, the Bank of Canada seems to agree.

If interest rates rise, as they are bound to do, CIBC economist Benjamin Tal expects many Canadians to go into bankruptcy due to increased debt payments. Tal explains, ”There’s simply enough people [living] at the margin that will feel the pain.”

Adding to the concern is the state of oil production in Alberta. The Canadian economy, which has been largely been driven by the production of crude oil in the oil-rich oil sands, has slowed considerably as employment growth has stopped in the western province. With unemployment expected to rise there over the next few years, Alberta has ceased to be the Promised Land for Canadians looking for work.

A recession, it appears, is heading our way. In fact, the Canadian economy has been shrinking in recent months and, if it continues throughout this quarter, Canada will officially be considered to be in a recession.

While the number of people currently unable to pay their debts is low at 1.2 percent, that number has been rising slowly. To reduce risk and avoid potential calamity, then, Canadians should be taking steps to reduce their debt rather than increasing it, even if it requires sacrifice. Furthermore, cutting expenses and, if possible, increasing income would help Canadians make more than the minimum monthly payments, thereby accelerating the reduction (and eventual elimination) of their debt load.

Canada’s economy emerged relatively healthy after the U.S. mortgage crisis of 2008, but a larger national crisis may be on the horizon. By starting now to reduce debt and restore financial health, however, Canadians can protect and position themselves for whatever lies ahead.