A report Tuesday from credit bureau Equifax Canada shows the practice is driving Canadians into debt as balances begin to exceed credit repayment ability. The report says that in the most recent quarter, credit card balances rose to the highest level since the last quarter of 2019. There was a 6.4 percent increase in credit balances between the first and second quarters of this year — and people are buying more credit cards also. “Overall consumer debt is rising,” said Rebecca Oakes, vice president of advanced analytics at Equifax Canada. He added that the rise in non-housing debt was one of the most illuminating trends to emerge from the report. Unsurprisingly, mortgage debt continues to rise due to high home prices and, in recent years, low interest rates that have encouraged people to take advantage of the market. But it’s the debt that’s accumulated outside the housing market that’s causing problems. “We all know that house prices have gone up over the last couple of years … some mortgage debt has gone up as well, but it’s really that non-housing component that we’re interested in right now.” Consumers who have a low credit score and are already at risk of missing payments are among the most likely to have seen a change in their credit balance. For those with a credit score below 620, there was a 16.2 percent increase in their credit balance from the second quarter of 2021. But the rise in credit card debt can be seen across the board, Oakes said. “It’s a lot of people in all age groups, in a lot of different credit risk scores, in different areas.” Equifax’s Atlanta headquarters is featured here. A report Tuesday from the company’s Canadian office shows that reliance on credit cards is driving Canadians into debt as balances begin to outpace the ability to repay credit. (Mike Stewart/The Associated Press) At the same time, lenders are offering “unprecedented” higher credit limits, Oakes said. According to the Equifax report, the current average credit limit is $5,800. The findings reflect June 2022 data released by Statistics Canada last month. The data agency said credit card debt with chartered banks rose 1.6 percent from the previous month. This fifth consecutive monthly increase was the latest sign that Canadians are increasingly relying on credit cards to manage inflated costs — as well as other consumer trends, such as the “buy now, pay later” services used to buy food , clothing and technology.
Prices go up, wages stay the same
Canadians rely on their credit cards to keep up with the cost of living. “I’m going to go buy a computer on my mom’s credit card because I have no other choice,” said Nicolas Gislason. (CBC) Nicolas Gislason, an Uber Eats driver and student who lives in Toronto, said he doesn’t think it’s possible to get by on the current minimum wage. “I’m going to go buy a computer on my mom’s credit card because I have no other choice,” she said. Several people interviewed by CBC News said that as inflation and interest rates have risen and the cost of living has become more expensive, they haven’t seen wage increases to catch up. “None of us have gotten a raise since inflation went up, so your cost of living is going up, not your salary. So of course people are going to use their credit cards,” said Melanie McQuillan of Vancouver. Kerry Taylor, a Vancouver-based personal finance expert, told CBC News that healthy financial habits created due to circumstances during the pandemic — including paying down debt regularly — didn’t hold up when inflation and interest rates rose this year. . With interest rates rising, “anyone who has a loan, variable rate mortgages, home equity lines of credit, home equity, some student loans — they’re going to pay more, so it’s going to be a little bit more cash-strapped,” Taylor said. Analyzing a credit card bill for forgotten monthly expenses or subscription purchases is one way to save money, he says. In the grocery store, the unit price — the price per count — under each item is the most reliable indicator of deals, he says. The Bank of Canada has been aggressively raising lending rates since the start of the year to combat high inflation, which peaked in June at 8.1%. Russia’s war in Ukraine drove global inflation even higher than in February, with food and energy prices soaring and supply chain delays contributing to extra costs at the retail level. In July, the central bank announced a further significant rate hike of 2.5%. However, Canadian economists expect another significant increase next week during a meeting on September 7. Taylor notes that as pandemic-related restrictions ease, people are paying more just to get out of the house: a road trip to see a relative who needs a full tank of gas, an expensive plane ticket for onward travel, or even to pick up the tab at a restaurant or bar. He also says that as inflation has reached 8%, Canadians have seen their wages stay the same – and those consumers are turning to credit cards to “close the gap.” “I have a credit card and I use it and that’s the only thing because you can’t save,” said Esther Imafidon in Toronto. (CBC) Esther Imafidon, who moved to Canada from Italy in 2019, said she relies on her credit card and is unable to save money as she racks up interest on missed payments. “It’s stressful,” he said. “I have a credit card and I use it and that’s the only thing, because you can’t save… I owe a lot of money. I owe a lot of money on the credit card.” Taylor says turning to credit cards is “really the first step people take when they’re in a deficit because it’s really easy to do.” “There’s not a lot of friction when it comes to hitting a piece of plastic to fill that gap.”
