Interest rates, inflation and affordability have many Canadians concerned about their debt

The  latest quarterly MNP Consumer Debt Index has some alarming information about the state of finances for Canadian consumers these days.

The Index, released on Monday, has plunged to an all-time low since it was created over five years ago.

Remaining consistent since last quarter, nearly half (45 per cent, -1pt) of Canadians report that they are $200 away or less from not being able to meet all of their financial obligations, including three in 10 (30 per cent, unchanged) who say they already don’t make enough to cover their bills and debt obligations.

Grant Bazian

“The unprecedented quarterly decline underscores the anxiety Canadians feel about their debt situation amid rising interest rates, persistent inflation, and heightened affordability concerns,” said MNP.

“This major shift in Canadians’ attitudes towards their personal debt is a reflection of the rapidly rising interest rates and persistent inflation this past year,” said Grant Bazian, president of MNP LTD., the country’s largest insolvency firm. “For many, this represents a double whammy, because inflation is eroding household budgets and, at the same time, financially fragile and overleveraged Canadians face sharply rising borrowing costs.

“More individuals are being forced to make tough financial decisions to try to stay afloat. Unfortunately, taking on more debt can have lasting financial impacts and push some into a debt spiral. These kinds of financial struggles often trigger stress and anxiety which can have a significant impact on mental health.

“Lower and some middle-income households typically spend nearly all their income each month, leaving very little wiggle room to accommodate an increase in expenses and debt carrying costs. These Canadians are struggling to maintain their standard of living, and often they resort to taking on more debt.”

Key findings from the report include:

• Nearly half of Canadians say they are concerned about their current level of debt (47 per cent), a record high, increasing seven points from the previous quarter;
• More Canadians this quarter say they regret the amount of debt they’ve taken on in life (49 per cent, +7pts);
• Down five points, fewer are confident in their ability to cover all of their living/family expenses in the next year without going further into debt (51 per cent);
• 68 per cent say they are already feeling the effects of interest rate increases, making a massive 11-point jump since last quarter;
• Spiking nine points from last quarter, significantly more now say their ability to absorb an interest rate increase of one percentage point has worsened (26 per cent);
• Three in five say that as interest rates rise they are more concerned about their ability to pay their debts (64 per cent, +9pts), and if interest rates go up much more, they will be in financial trouble (59 per cent, +9pts);
• Over half report feeding themselves and their family (57 per cent, +5pts) and putting money aside for savings (56 per cent, +7pts) are less affordable. About half say that transportation (50 per cent, +5pts), clothing or other household necessities (51 per cent, +6pts) and housing (45 per cent, +8pts) are becoming less affordable;
• Compared to December 2021, more say they have paid only the minimum balance on their credit card (26 per cent, +5pts), borrowed money they can’t afford to pay back quickly (18 per cent, +7pts), or paid the minimum balance on their line of credit (17 per cent, +6pts). One in five say they will use their savings to pay their bills (21 per cent, +3pts), while one in 10 say they will use their credit card to pay their bills (14 per cent, +1pt) or borrow from friends or family (13 per cent, +5pts). A third say they plan on reducing their consumer expenses to make ends meet (36%), increasing four points since last quarter.

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)