According to a new Equifax report, Canadian consumer debt has now climbed to over $1.8-trillion.
$1,821,000,000,000 – That’s how much collective household debt Canadians had in the fourth quarter of 2017 according to a recent study done by Equifax, which is up from the $1.797 trillion reported in the previous quarter.
The report attributes the rising debt to an increase in the various types of loans Canadians are taking out, including mortgages (6.2%), auto loans (6.5%), and installment loans (10.3%). While it may sound like a lot, Regina Malina, a senior director of decision insights at Equifax Canada, believes things may not be so bad.
"Despite the high debt, mortgage payments are generally on time, which could be attributed to low unemployment numbers and mortgage and auto finance interest rates which are still at historically low and reasonable levels," said Malina in a statement released Monday.
As it turns out, 46% of Canadians reduced the amount they owed last year, 37% that added more debt to their load, and 16% of Canadians maintained the same level of debt. If you break things down individually, there is $22,837 of debt per Canadian, not including mortgage debt.
Watchdog warns Canadian debt levels are risky
Those on the outside looking in may never understand why we Canadians have so much debt or why our homes cost so much. Canadians may not have the answer to those questions either, but many are happy to see their property values go up.
Despite the fact that Canadians are feeling positive, a report by the Bank of International Settlements (BIS) suggests Canadians may be at risk of a possible financial imbalance. Canada's credit-to-GDP gap of 9.6 is considered critical and continues to widen over time.
And on a more personal level, the Canadian debt-to-income ratio sits at 171% – a record high! This means Canadians owe an average of $1.71 for every $1.00 of income they earn. When you combine rising personal debt levels and the high housing prices, there’s definitely cause for concern.
How to keep your own debt in check
If you’re concerned about how much debt you’re carrying, you can take some immediate steps to reduce your debt loads.
If you’re a homeowner, your mortgage contract may allow you to make lump payments. Alternatively, you may be able to change your payment terms so you’re making more frequent payments. And if you arrange for these extra payments to go directly towards the principal amount you owe, you’ll pay less in interest in the long run.
If you’re in credit card debt, join the ranks of millions across the globe. Credit card debt can be devastating since the interest rate hovers around 20%, but it can be quickly nipped in the bud with diligence. One solution would be to use a low balance transfer credit card that gives you get access to a lower interest rate for a set period of time. The idea is to pay down as much of your debt as possible with a lower interest rate – meaning even if you can’t pay off all your debt, at least it won’t escalate as fast.
Rising debt levels should always be a concern, so stay within your budget. Be conscious of how you spend your money; while that daily coffee may not put you in crippling debt, purchasing a home you really can’t afford or financing a vehicle on an extended-term can.
