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Canadian Credit Card Balances Down 12.3% During COVID-19

Sept. 11, 2020
3 mins
A man and a woman lounge on a couch and online shop together

Despite the financial hardships brought on by the pandemic, Canadians have reduced their credit usage and decreased balances on revolving products, according to TransUnion Canada’s Q2 2020 Industry Insights Report.

The TransUnion report suggests the drop is related, in part, to the emergency measures restricting access to financial institutions and retailers, limiting new credit accounts and slowing consumer spending. As credit usage decreased, revolving balances dropped, and certain segments of consumers rapidly reduced their debt.

Furthermore, delinquency and insolvency rates improved with the help of financial aid and accommodation practices, such as payment deferrals.

“COVID-19, of course, continues to be the dominant driver of changing conditions in credit markets, but it is very encouraging to see lenders and borrowers working together to adapt to the new environment,” Matt Fabian, director of financial services research and consulting at TransUnion, said in a release.

Results from the seventh installment of TransUnion’s Financial Hardship Survey suggest consumers continue to rely on financial accommodations, most notably for credit cards.

Of those receiving deferrals, the products include:

  • Credit cards: 29%
  • Mortgages: 28%
  • Personal loan: 17%
  • Utilities: 16%

Although the total outstanding debt in Canada grew by 4.3%, credit card balances fell significantly by 12.3% year-over-year, with the driving factor to be Canadians postponing expenditures like vacations and home improvements.

However, the report does indicate that credit card balances for Millennials and Gen Z consumers increased by 0.8% and 5.9%, respectively. These generations typically have fewer resources in the form of savings or investments to use in case of emergency.

Consumers are resorting to using money from savings and retirement accounts to avoid taking on more debt. The Financial Hardship Survey shows that roughly 13% of Canadians are withdrawing funds from their tax-free savings accounts (TFSA) or registered retirement savings plans (RRSP) to pay the bills.

“Many Canadians are opting to dig into their personal savings and investments rather than taking on additional debt, which could partly explain the general decline in new originations,” Fabian explains. “There are obvious longer-term implications to this approach, but this is an unprecedented situation, and we will have to see how sustainable it is if the economic recovery is slower to materialize.”

The survey found that consumers are planning for the inevitable end to government support and financial aid provisions — approximately 32% of respondents want to create a repayment plan. Though, 28% plan to extend accommodations for additional time if possible.

Debt management

It is hard to believe that six months have already passed since the big banks launched the financial emergency measures, including the mortgage and credit card deferral programs.

For many, this can be an overwhelming prospect. Planning for the end of financial accommodations can be stressful. However, it is best to prepare in advance of when that time comes.

Payment plan

Reach out to your financial institution to see if they are extending relief initiatives or have repayment plan options available.

Pay down high-interest debt

Working toward lowering your balances on high-interest debt can save you money in interest charges. Taking advantage of a balance transfer, particularly on a low-interest rate credit card, can help you pay off more of the principal and reduce your debt faster.

Consolidate debt

You may choose to consolidate your debt into a loan or line of credit. Typically, you can transfer your high-interest debt into one place at a lower interest rate. That way, you can pay off the various accounts and spend less money on interest charges. You will also only have one payment to make, instead of several.

Additional financial aid measures

For those who continue to face financial hardships, the government is working on changes to the Employment Insurance program and introducing the Canada Recovery Sickness Benefit (CRSB) for additional support in these unprecedented times.

Hayley Vesh

Hayley Vesh is a creative, resourceful, and knowledgeable content producer who is passionate about financial literacy, storytelling, and generating ideas. She writes about credit cards, savings, debt management, and personal finance. In her spare time, Hayley can be found wandering in the woods, hunting for second-hand treasures, or curled up with a steeped tea and a good podcast.

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