Good morning.
Canadians are piling on more debt as they continue to feel the pinch from high inflation and interest rates, according to Equifax Canada’s quarterly consumer credit trends report.
Total consumer debt rose to $2.37 trillion in the fourth quarter of 2022, an increase of 6.2 per cent from the same period in 2021, the latest Market Pulse noted.
“The ability to manage finances through a sustained period of high inflation with rising living costs is unfortunately proving too much for some individuals,” Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, said in a press release. “We are also seeing additional early warning signs that this may be the start of things to come.”
Non-mortgage debt levels increased 5.4 per cent year over year in the final quarter of 2022, with millennials experiencing an above-average increase of 8.4 per cent.
“Millennials are entering the most credit-active phase of their lives in a very challenging economic period,” Oakes said. “They may need to budget accordingly to deal with the higher cost of day-to-day necessities, as well as increasing high-interest loans.”
A key driver in the overall growth of non-mortgage debt was the increased use and reliance on credit cards, with the number of credit-active consumers in the fourth quarter growing by 3.2 per cent from a year ago. Some 1.4 million new credit cards were issued in the final three months of 2022 alone.
As a result, the total consumer credit-card balance also rose, crossing $100 billion for the first time ever, an increase of 15.3 per cent from the same period in 2021.
Equifax points to two primary areas for the additional take-up in credit usage: higher costs of living and newcomers.
“Canada has strong immigration targets with an aim to welcome 500,000 per year into the country by 2025,” Oakes said. “These individuals have credit needs, which adds to the growing demand for products.”
However, credit-card payments have started to slow down, with over 300,000 more consumers carrying an unpaid balance from one month to the next as of December 2022 compared to 2021. The average revolving credit-card balance climbed 9.3 per cent during that time.
But what’s surprising is that despite rising interest rates, consumers without a mortgage had the biggest jump in missed (non-mortgage) payments. Non-mortgage consumers had an 11 per cent increase in their proportion of missed credit payments in comparison to only six per cent of consumers with a mortgage.
The missed payments are also reflected in the 90-plus day volume delinquency for credit cards (23 per cent) and auto loans (11 per cent) in 2022.
“We are starting to see increases in missed payments on credit cards and auto loans, particularly for lower-income consumers,” Oakes said.
Overall, consumer proposals, a type of insolvency, increased by 26.4 per cent from the final quarter of 2021 as a growing number of Canadians were unable to pay off their debt. That figure might keep growing given the increase in mortgage rates.
“As more mortgages come up for renewal, future payment shocks for homeowners are a real concern,” Oakes said. “There are thousands of fixed-rate mortgages expected to be renewed in the next 12 months and this will likely lead to either an increase in the monthly mortgage payments for these consumers or a need to extend mortgage terms to maintain existing payment levels.”
