Canadian Household Debt Hits Record High, And Paying It Off Is Getting Harder

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The average Canadian household had a record $1.65 in debt for every dollar of disposable income in the fourth quarter of 2015, Statistics Canada says, up from around $1.64 in the previous quarter.

That's in part because debt is growing twice as fast as people's incomes. Household debt grew by 1.2 per cent in the quarter, while incomes rose 0.6 per cent.

That debt load is becoming harder to pay as well. Households on average used up 13.8 per cent of their disposable income on debt payments in the fourth quarter, up from 13.5 per cent in the previous quarter.

“Interest rates have been hovering at a low level for a long time, which has played a significant role in spurring Canadians’ appetite for taking on more debt,” said Scott Hannah, the CEO of the Credit Counselling Society, in a statement issued after the debt numbers' release.

“Taking on this level of debt may seem manageable at the time, but an unexpected repair, a job loss or a jump in interest rates could really send your finances into a tailspin.”

household debt canada
Canadian household debt has been rising for years, but the ratio of debt to assets (light blue line) has declined, because house prices are rising faster than debt. (Chart: StatsCan)

Credit rating agency Equifax said this week that consumer debt delinquencies are on the rise among younger Canadian borrowers, and in oil-exporting regions of the country.

Delinquencies have spiked by 25 per cent in Alberta, while rising by 14 per cent in Sasaktchewan. Delinquencies among the under-26 crowd grew by 2.9 per cent, Equifax said.

Low interest rates aren't "something that will continue forever,” Hannah said. “It’s tempting to take out more loans and use up credit since interest rates are so low, but when interest rates increase, and they will, it’s going to leave many Canadians in financial difficulty.”

Hannah said borrowers should consider carefully whether they can afford their debt at higher rates,

“While interest rates are low, do your best to pay down as much of your debt as you can instead of taking on more debt. ... Financial freedom and being free of debt is a great gift to yourself.”

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