Credit card balances in Canada reached an all-time high of $107.4 billion in the second quarter of 2023, according to Equifax (NYSE:EFX) Canada, indicating a continuous buildup of financial stress amidst inflation and rising interest rates. The firm also reported that total Canadian consumer debt hit $2.4 trillion during the same period.
The surge in non-mortgage debt was primarily driven by significant growth in credit card balances and a noticeable increase in debt among subprime and deep subprime consumers, said Rebecca Oakes, Vice-president of advanced analytics at Equifax Canada. On average, non-mortgage debt per credit-active consumer rose to $21,131.
Despite the escalating credit card debt, delinquencies have not risen as rapidly as anticipated. Oakes attributes this to an influx of new credit card users, which also contributed to the overall growth in non-mortgage debt.
However, Equifax Canada notes that many Canadians are reducing their credit card spending. Lower-income households are finding it more challenging to curb spending, with fewer consumers managing to pay their monthly credit card balance in full during the second quarter.
"Factors such as substantial house price increases, larger loan amounts, a higher proportion of variable-rate mortgages, and the elevated cost of living have contributed to the delinquency rise," Oakes said to The Canadian Press on Thursday. She further warned that payment shocks for newly renewed mortgages and upcoming renewals could impact consumer finances, especially for those facing mortgage terms extending beyond their expected retirement age.
An RBC Economics study from August 11, 2023, corroborates these findings by showing a slowdown in Canadian spending due to debt pressures. The study also noted early signs of weakness coinciding with a slight increase in the unemployment rate.
Equifax reported that minimum monthly payments for credit cards and unsecured lines of credit increased by 11.7% and 18.3% respectively, on an annual basis. Home Equity Line of Credit (HELOC) holders also saw their payments rise by over $200.
"Consumers are becoming more prudent with their credit-related decisions," Oakes said. "We've seen consumers shopping around more for the best mortgage deal at point of renewal and some switching to alternative credit products which may be lower rate to cover the costs of large purchases."
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