Consumer debt, credit delinquencies on the rise, Equifax report says

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Consumer debt and credit delinquencies are on the rise as high interest rates, skyrocketing housing costs and inflation take a toll on Canadian borrowers, according to a third-quarter report from credit-rating agency Equifax Canada. Credit counsellors say they expect those effects will worsen in coming months and years.

Rebecca Oakes, vice-president of advanced analytics at the firm, said credit card debt rose significantly and drove increases in overall debt in the third quarter of 2023, a concerning trend that leaves Canadians vulnerable to high interest rates.

The Equifax report found the average balance of credit card holders rose to $4,119 in the third quarter, up from $3,727 in the third quarter of 2022 and surpassing pre-COVID-19 levels. At the same time, the percentage of credit card holders making the minimum payment on their card rose by 3.4 per cent, while the percentage of those paying off their balance in full dropped by 1.5 per cent.

Overall, total consumer debt rose to $2.4-trillion, an $80.9-billion increase from the previous year.

“It’s the same thing we’ve been seeing all year, but the pace is picking up, which is what we expected,” said Ms. Oakes, who said increased rent and mortgage costs mean more people are relying on credit to cover their living costs.

“As more mortgage renewals continue to happen, we’re going to see more Canadians begin to experience payment shock and that’ll continue over the next year.”

Experts say they expect a hangover of months or even years of consumer debt increases, as high interest rates begin to make their full effect felt on borrowers and inflation continues to squeeze Canadians. A further complication is that Canada’s housing shortage has meant that rising interest rates have not led to substantial drops in home prices. It’s a factor in the 1.7-per-cent growth of mortgage debt from the second to third quarters of 2023.

Mark Kalinowski, a credit counsellor and financial educator with the Credit Counselling Society in Calgary, said he’s particularly concerned with the rise in average credit card balances because low-income Canadians are using that form of credit just to make ends meet.

“Credit card debt is always most concerning because once it gets away from you, it’s hard to get caught up,” said Mr. Kalinowski, who said it could take years for Canadians to catch up.

Meanwhile, the Equifax report found delinquencies were on the rise for all forms of debt. One in 25 Canadians missed a debt payment, compared to one in 31 as the pandemic took hold.

Overall delinquency rates on non-mortgage balances, when no payment has been seen for 90 days or more, reached 1.2 per cent, up 29.2 per cent from the same quarter in 2022.

That included auto loans delinquencies, which surpassed prepandemic levels. Ms. Oakes said that trend is concerning because auto loan delinquencies were already climbing quickly before COVID-19, and consumers are challenged today by ever-increasing car prices during an era of high demand and supply shortages.

Mortgage delinquencies remain well below prepandemic levels across Canada, but there are regional hot spots such as Ontario, where delinquency rates surpassed 2019 levels by 4.6 per cent, although they remained under peak levels seen during the second quarter of 2020, when the pandemic first started impacting Canadians.

Ms. Oakes said Ontario and British Columbia are two areas where overall delinquencies increased the most, which she said is a result of especially expensive real estate and rental markets.

As more homeowners face mortgage renewals with elevated interest rates in 2024, she expects further upward pressure in those markets.

Mr. Kalinowski advised anyone who is facing challenges related to paying off credit card debts or with their mortgage rates to contact their financial institutions to see whether their provider can offer any relief or help outline their best options for paying off their debts.