Canadians’ credit card debt rose more than 15% from the same period a year earlier and totaled more than $100 billion for the first time, the credit watchdog reported Thursday. Equifax credit.
The slowdown in debt payments and the increase in balances herald a difficult period in 2023
said Laurie Campbell, director of financial well-being at debt relief firm Bromwich and Smith.
« We haven’t seen incomes grow in proportion to inflation. people use credit […] to bridge the gap between income and expenditure. »
Overall consumer debt grew in the fourth quarter of 2022, with total debt of $2.37 trillion, up more than 6% from the same period in 2021, Equifax said in its latest quarterly trends report. of the consumer credit market.
According to the agency, the effects of the rise in interest rates have not yet been fully felt by homeowners, since many of them have not yet renewed their mortgages, but young Canadians are particularly feeling the financial pressure from inflation.
Financial stress among non-owners
The financial stress of Canadians is apparent in these latest data, especially among non-homeowners, noted Vice President of Advanced Analytics at Equifax Canada, Rebecca Oakes.
We see pockets of financial stress starting to appear
, she pointed out. Additionally, insolvencies and missed payments on credit products are on the rise, she said.
While mortgage debt accounts for three-quarters of all consumer debt, and the cost of that debt has risen with rising interest rates, consumers are also grappling with non-mortgage debt, such as credit cards, Equifax said.
Non-mortgage debt levels increased by 5.4% in the fourth quarter, but for millennials, this debt increased by 8.4%.
Growth in non-mortgage debt has accelerated through increased use of credit and reliance on credit cards, Equifax said. Consumers under 35 saw the biggest shift in overall credit card debt, and more than 1.4 million new cards were issued in the fourth quarter, a high volume that it says Equifax, contributed to the increase in balances.
People without mortgages tend to be younger or have lower incomes and less savings, which is likely why they struggle more with non-mortgage debt like credit card debt, said Mrs Oakes.
These persons are starting to struggle a bit, and inflation isn’t coming down fast enough
, she pointed out. Moreover, they rely more on the credit card and may start to miss a few more payments
.
Default on the rise
Consumers without mortgages saw the largest increase in missed debt payments in the fourth quarter, Equifax reported. The proportion of those who missed a payment on a credit product in the fourth quarter increased by 11% over the previous year, compared to 6% for consumers with a mortgage.
Meanwhile, the default rate among 18- to 25-year-olds jumped nearly 31% year-over-year, compared to a 17% increase for consumers overall.
Even as credit card payments slowed, card usage remained high, Equifax added. Over 300,000 consumers use it and carry a balance on it.
The fact that payments decrease while balances increase is a harbinger
said Ms. Oakes.
When Canadians are unable to pay more than the minimum payment on their cards or start to miss payments while continuing to spend on credit, it can become a vicious circle
explained Ms. Campbell.
« Once people start failing, it’s very hard to get out of it. And the interest starts piling up to such an extent that it feels like they are only paying interest and they will never be able to get out of debt. »
According to the Office of the Superintendent of Bankruptcy, consumer insolvencies rose 33% year over year in January, and more than 14% from December.
In a press release, the Canadian Association of Insolvency and Restructuring Professionals clarified that financially vulnerable Canadians may turn to credit cards or lines of credit to fill gaps in their budgets, which expose them to additional risk.
Canadians who hold mortgages are starting to feel the strain or, for some, will feel it when it comes time to refinance, Equifax noted.
The average mortgage holder was paying $170 more per month than before the pandemic, and the agency expects that figure to swell further as new mortgages come up for renewal.
Other variable-rate borrowing products, such as home equity lines of credit, have seen minimum monthly payments rise 24% from pre-pandemic levels.
But Oakes expects homeowners to increasingly feel the effects of rising rates, as between 450,000 and 500,000 Canadians will renew or refinance their mortgages in 2023, at similar levels to 2022.
It takes time for the full impact of high interest rates to be felt
she said.
