Credit debt increases: Increasing numbers of Canadians are falling behind on their non-mortgage monthly payments, according to a report released by Equifax on Tuesday. This is due to consumers falling deeper into debt due to high-interest rates and a rising cost of living.
The credit monitoring agency reported in its most recent consumer credit report that in the first quarter of this year, 175,000 more consumers missed payments on at least one nonmortgage product, such as credit cards and auto loans, a 19 per cent increase from the first quarter of 2022.
Credit debt increases
While nonmortgage holders were more likely to have missed payments at the end of 2022, Equifax reports that mortgage holders missed more payments on the nonmortgage debt in the first quarter of 2023, a 15.7% increase from the same time last year.
In a statement, Rebecca Oakes, vice president of advanced analytics at Equifax Canada, said, “At the end of last year, younger and lower-income individuals exhibited increased payment difficulties.” We are now beginning to observe an increase in the number of struggling householders, particularly in the wake of mortgage renewals in which payment amounts have increased significantly.
According to Doug Hoyes, co-founder of the personal insolvency firm Hoyes, Michalos & Associates Inc., when more consumers with a mortgage fail to pay other expenses and credit cards, it creates a worrying ripple effect.
Hoyes explains that people always pay their mortgage first if they can, but the high cost of living and interest rates may make it difficult for consumers to pay off other expenses, such as credit cards, and “when you get behind on a credit card, you’ll pay more interest next month.”
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Credit debt increases as Canadians contend with a rise in the cost of living and unpayable bills
“The report indicates that an increasing number of borrowers are reaching their limit,” says Hoyes. “And when sufficient numbers of individuals reach the breaking point, there are more defaults. It will become evident that we are in a recession when banks begin foreclosing on homes, causing real estate prices to fall.
The Bank of Canada stated in its annual review last month that it is more concerned than it was a year ago about Canadians’ ability to manage their debt and the associated risks.
While approximately one-third of mortgage payments have increased since February 2022, just before the Bank of Canada’s recent rate-hiking campaign, nearly all borrowers are projected to experience higher payments by 2026.
And by 2026, mortgage payments for those with variable-rate mortgages with fixed payments could increase by as much as 40%, while payments for those with fixed-rate mortgages could increase by 20% to 25% over 2022 levels.
Equifax reported on Tuesday that credit card debt continues to increase. The agency reported that consumers are spending an average of 21,5% more each month on their credit cards compared to pre-pandemic levels.
As consumer purchasing slows after the holidays, the first quarter typically sees a decline in nonmortgage debt, according to Oakes of Equifax. In contrast, credit card balances continued to increase in the first quarter of this year.
According to Oakes, the higher cost of living and the influx of new credit customers have caused credit card balances to increase by 14.5% annually.
“I believe this story is just beginning,” Hoyes said. It does not bode well for the average Canadian, whose savings have been significantly depleted over the past two years and whose expenses are rising faster than their income.
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