Bad debt in Canada

Consumer Debt: The Size of the Problem

According to the credit-reporting firm Equifax, the average Canadian household carries $22,800 in non-mortgage-related debt. When we look at people aged 46-55, that figure rises to $34,100. These are people who should be saving for retirement, but thanks to such debt loads, many find this impossible. A BDO Canada survey found 37% of people aged 34-54 had little or no retirement savings.

On average, Canadians owe $1.77 for every $1.00 in earned income. For some of us, it’s even worse: The Bank of Canada claims that 8% of indebted Canadians owe 350% or more of their gross income, a staggering burden.

Many Canadians have given up hope of ever being debt-free.

Increased Interest Rates Are Pushing Debtors Over the Edge

After years of a downward trend in defaults, bankruptcies, and other indicators of debt stress, the arrows are pointing in the other direction. Equifax predicated an increase in late payments and defaults on credit card debt in 2019. The number of Canadians $200 or less away from insolvency every month increased from 40% to 46% in the last quarter, according to insolvency management firm MNP.

The number of consumers seeking debt relief went up 5.1% from the previous year, according to the Canadian Superintendent of Bankruptcy. In hard-hit Alberta, this number was 16%.

An increasing number of Canadians have chosen home equity loans and lines of credit to address credit card debt. But, according to the Financial Consumer Agency of Canada, ¼ of borrowers are only repaying the interest on these loans.

For an economy, heavily dependent on consumer spending and real-estate purchases, these are worrying trends.

A Debt-Stressed Populace

Recent surveys hint at the debt burden on ordinary Canadians. A recent BDO Canada survey of 2000 Canadian adults revealed that 20% of Canadians without kids said the burden of debt in their lives was so great that they didn’t know what to do. For Canadians with kids, that percentage increased to 34%.

A 2018 Angus Reid survey showed 1/3 of Canadians were “very stressed” about money. 11% had used payday loans to get by. 25% had borrowed money to pay for basic needs like groceries and gas.

A 2018 survey by the Canadian Payroll Association showed 40% of Canadians felt overwhelmed by debt, as opposed to 35% in the 2017 survey.

Debt Stress is Affecting People from All Walks of Life

Clearly, there’s a debt stress problem in Canada. And it can’t be addressed on the instalment plan. Insolvency expert Scott Terio tells of counseling accountants, small business people, and financial analysts, all struggling with terrible debt loads. The old stereotype of the “deadbeat” just doesn’t reflect reality.

The problem of crushing consumer debt in Canada will no doubt be foremost in the minds of decision makers, as they weigh mortgage rules and interest rate policy in the year ahead.