How much credit card debt does the average Canadian have?
As the country re-opens after COVID-related restrictions, Canadians are faced with a worrying financial picture. Many have moved, others are looking to travel, and the cost of living is ballooning with unusual rates of inflation. Meanwhile, the Bank of Canada (BoC) rate hikes designed to curb these forces are adding pressure to those with variable-rate loans and mortgages. Unsurprisingly, many Canadians are using their credit cards to charge their expenses.
How much debt does the average Canadian carry?
The average credit card balance for Canadians in the first quarter of 2023 was $3,909, according to Transunion. And that is up from average monthly credit card spend of almost $2,447 in the third quarter of 2022, which is above the 17.3% from same time in 2021 and up 21.8% in 2019, according to Equifax. And from another report, Canadian consumer debt has risen to $2.4 trillion, with an average debt load of approximately $21,131—excluding mortgages. These numbers represent an increase of 8.2% over last year, and 6.4% between the first and second quarters of 2022. And Canadians are using credit cards more, as there was a 6.4% increase in credit balances from the first quarter to the second.
This news, though unwelcome, is not unexpected according to some experts. Anne Arbour is the director of strategic partnerships at the Credit Counselling Society, an accredited non-profit charity that helps Canadians solve their money problems.
“When you combine the way the current pace of inflation is affecting everyday needs like food and gas, coupled with the impact of our post-pandemic spending on things like travel and entertainment, it is not surprising to see these numbers,” she says, adding that BoC interest rate hikes are compounding the issue.
“Recent jumps in interest rates are also affecting the disposable income of any consumer with a variable-rate loan or mortgage or line of credit, so it also makes sense that they might turn to using even more credit to help bridge the gap in their resources.”
According to consumer insolvency firm MNP Ltd, 59% of us are feeling the effects of these rate increases, and with an estimated two million Canadians renewing their mortgages within the next 12 months, more people are likely to feel the pinch.
“Credit card spending is reaching historically high levels,” stated Rebecca Oakes, vice president of advanced analytics at Equifax Canada, in a press release. “High consumer demand for credit cards means a competitive marketplace for lenders. As a result, the credit limits being offered on new cards are much higher than we’ve seen in previous periods.”
How long should it take to pay off credit card debt?
The answer depends largely on your own personal circumstances. How much can you afford to pay off monthly?
“What’s important for anyone to know,” says Arbour, “is their monthly capacity to make payments.”
Being proactive and disciplined about meeting at least your minimum payments—and more, whenever possible—is essential to settling your debt. Overestimating what you can afford to pay, however, can create an untenable financial situation that might require you to take on even more debt. Arbour recommends using a calculator like this interactive budgeting tool to help yourself find the sweet spot.
“What dream or goal do you have for your future self or loved ones that you could be saving for now, rather than using your hard-earned dollars to repay that debt for months or years to come?”
Why it’s important to tackle your debt now
Carrying debt can be a huge strain on your financial health and also your emotional well-being.
When you have unpaid debt, the dollar amounts on the credit card bills only represent a portion of the cost of repayment. You’ll also need to account for the interest accumulated while you pay them off. The longer you take, the more interest will accrue.
An unbalanced credit utilization ratio (the amount of debt you carry compared to the amount of credit you have) or missed payments will have a negative impact on your credit score, which could, in turn, affect your ability to take out a loan, get a mortgage or even get a job.
“What I’d also like people to take into consideration is the opportunity cost of letting a debt sit for any period of time,” notes Arbour. “What are you giving up on by not repaying that debt as quickly as possible, or even letting it get larger? What dream or goal do you have for your future self or loved ones that you could be saving for now, rather than using your hard-earned dollars to repay that debt for months or years to come?”
Also, debt, particularly when held for a prolonged amount of time, can cause enormous amounts of stress. Arbour points to sleep problems and health complications as the physical effects. These can lead to lower productivity and higher absenteeism, negatively impacting your professional life. Emotionally speaking, debt can affect your moods and your relationships with others.
Proven strategies to bring down credit card debt
Once you’ve decided to tackle your debt, you’ll want to build a strategy. “The best, first step is to take a deep breath and to face the issue,” Arbour advises. “Debt can feel very isolating, but you are not alone and there is help available.”
Make a budget
You simply can’t plan to pay back debt effectively unless you understand what you’re working with. “Knowing your numbers—how much you owe today, at what interest rate and to whom—is a great place to start, as well as knowing your resources—how much money you have to direct to the debt each week or month,” says Arbour. She also recommends reaching out to a neutral, confidential, professional source, like her organization, which provides accredited counsellors to assist.
Be wary, however, of advice or schemes that sound too good to be true. “It took some time to get into debt, so it could take some time to get out of it,” Arbour warns. Be skeptical of companies promising quick fixes.
Negotiate interest rates or the terms of your debt
One lesser-known strategy is to approach your creditors and ask to renegotiate rates or terms. This could involve asking for a lower interest rate—or even asking for the ability to pay on an accelerated schedule, should that be within your means.
“It’s important to know the terms and conditions of your particular debts,” says Arbour. “Ideally, you don’t want to incur any penalties or charges that would negate any benefits you’d get by paying things off early.”
Switch cards
If you’re carrying debt on a regular credit card, you’re likely paying around 20% in interest. By switching to a lower-interest card, you can relieve your debt load substantially. Some cards offer a low-interest or no-interest promotion for a limited time when you do a balance transfer. Find the right offer to buy yourself some time.
Consolidate debt
If you’ve got several types of debt such as personal lines of credit, credit cards and loans, it might be helpful to look at debt consolidation as part of your repayment strategy. Debt consolidation is the process of taking multiple debts (each with its own terms and rates) and combining them into one debt—with a single monthly payment and a lower interest rate.
If you’re among the millions of Canadians carrying debt, you’re not alone. Luckily, there are resources and strategies you can use to improve your financial and emotional well-being, and shrink your balance.
Read more about Canadians and debt:
- The MoneySense Guide to Debt Management: How to get out of debt
- Five money hacks to reduce credit card debt
- What’s the best way to pay down debt?
- Debt management: How I got help to take control of my debt
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