(Toronto) Canadian credit card debt soared in the last three months of 2022 amid rising interest rates and stubbornly high inflation, and young Canadians, in particular, seemed rely on credit to make ends meet.
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, credit monitoring agency Equifax reported Thursday.
Slowing debt payments and rising balances herald a “difficult time in 2023”, said Laurie Campbell, director of financial wellbeing at debt relief firm Bromwich and Smith.
“We haven’t seen incomes increase in line with inflation,” she said. people use credit […] to bridge the gap between income and expenditure. »
Overall consumer debt increased 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 market trends report. consumer credit.
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.
More stress for non-owners
The financial stress of Canadians is apparent in these latest data, especially for non-homeowners, noted Vice President of Advanced Analytics at Equifax Canada, Rebecca Oakes.
“We are seeing pockets of financial stress starting to emerge,” she pointed out, noting that insolvencies and missed payments on credit products were increasing.
While mortgage debt accounts for three-quarters of all consumer debt, and the cost of that debt has risen with interest rate hikes, consumers are also struggling with non-mortgage debt, such as credit card debt. credit, Equifax said.
Non-mortgage debt levels rose 5.4% in the fourth quarter, but for millennials, that debt rose 8.4%.
Growth in non-mortgage debt was driven by increased use of credit and the use of 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, Ms.me Oakes.
“They’re starting to have a bit of a hard time, and inflation isn’t coming down fast enough,” she said.
“They’re relying on the credit card more and maybe they’re starting to miss a few more payments. »
Failures 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 11% from a year earlier, compared to 6% for consumers with a mortgage.
Meanwhile, the default rate among 18- to 25-year-olds rose 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 are falling while balances are rising is “a warning sign”, said Ms.me 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 cycle,” Ms.me Campbell.
“Once people start to fail, it’s very difficult 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,” she said.
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 news release, the Canadian Association of Insolvency and Restructuring Professionals warned that financially vulnerable Canadians may turn to credit cards or lines of credit to fill gaps in their budgets, expose them to additional risk.
Canadians who hold mortgages are starting to feel the pressure, although for some it could be delayed until the time of a refinance, Equifax noted.
The average mortgage holder was paying $170 more per month than before the pandemic, and the agency expects that figure to rise 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.
Butme 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.