While most Canadians are living within their means, they need to be thinking about what could happen if interest rates suddenly rise, Harper told Global News national anchor Donna Friesen in an interview.
Statistics Canada reported earlier this month that debt levels were at their highest yet — for every dollar of after-tax income Canadians bring home, they're borrowing more than $1.64.
"I'm convinced we're now seeing a moderating trend in this, and I think it'll start to turn down in the next year and a year or two, but we continue to urge people to have caution because eventually, interest rates will go up," Harper said.
"You should be asking yourself, 'If interest rates were a couple of points higher, can I really afford the debt load I'm taking on now?' And so we just urge people to be cautious on that."
Mortgage debt is the primary driver of higher consumer debt loads after years of low interest rates.
Statistics Canada said that between July and September of this year, households borrowed $27.3 billion, $18.4 billion of it in the form of mortgages.
Consumer credit levels increased by $7 billion to $474 billion.
Harper's comments echo concerns raised in recent months by both Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney that debt levels are getting too high.
"That’s why the government is taking some measures to provide incentives to households not to borrow quite so much," Harper said in the interview.
"But you know, the fact of the matter is, this is (a) decision that households have to make for themselves."
Mortgage rules were tightened over the summer, including a reduction in how long Canadians can borrow the money for their house.
The housing market cooled off slightly afterwards and the Canadian Real Estate Association has said it expects that to continue into next year.
Harper says Canadians also need to look at the long-term picture, especially as baby boomers head towards retirement with uncertain pensions.
"What I'd say to all Canadians is balance your debt levels, balance your borrowing, and balance your ambitions in terms of house ownership with some savings as well," he said.
Meanwhile, don't panic about the world, Harper said.
While things may look gloomy in the U.S. and Europe, Canadians need to focus on their own prosperity, he said.
"Let’s focus as a country, and focus as an investor or worker, on what you can do to make your job and your company more competitive in the years to come," he said.
"That’s what we're focused on."
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