Rising Canadian Living Costs Lead to Increased Credit Card Debt of $4,000 Average Balance

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The constantly escalating cost of living is leading a growing number of Canadians towards the use of credit, resulting in an average credit card balance of $4,000. This information comes from a recent report released by TransUnion.

The report, specifically the Q2 2023 Credit Industry Insights Report, revealed a 4.2 percent ($94.8 billion) rise in household debt in Canada when compared to last year. The total amount now stands at a staggering $2.34 trillion. The main thrust behind this increment, according to the report, is mortgage loan debt which has seen consistent growth for the fifth straight quarter, marked by a nine percent year-over-year surge as existing home sales start to climb back up.

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TransUnion’s evaluation of Canadians’ financial management and debt handling — the Credit Industry Indicator metric — which covers aspects like demand, supply, consumer behaviour, and performance, showed a 1.6-point increase, taking it to a score of 106 in the second quarter of 2023. This trajectory aligns with pre-pandemic levels and shows a moderate yearly increase driven by heightened credit demand.

These increased debt levels combined with rising interest rates, have led to expanded minimum payments, further compounding the pressure on cash-strapped consumers. A particular section in the report notes that Canadians’ famed resilience in credit consumerism may be faltering — indications are there of some individuals, such as early-career Gen Z population, struggling in the current high-interest rate climate.

In the press release, Matthew Fabian, the director of financial services research and consulting at TransUnion in Canada, noted the unfaltering resilience of both Canadians and the economy. Nevertheless, the strain of soaring living costs coupled with high interest rates has intensified the already-heavy burden of debt for some Canadian households. Despite strong employment and continued savings growth tempering some financial stress, many consumers have sought out credit as a short-term liquidity solution.

The report also revealed that the total number of Canadians in credit card debt rose by 3.3 percent in the first quarter of 2023. Following this trend, consumers from all risk categories have amassed more debt, especially the most at-risk group — subprime consumers —, who experienced an 8.9 percent rise in their debt levels year-over-year. There has been an increase in consumer balances across credit products, surpassing the $4,000 mark, due primarily to escalated spending habits. On average, consumers’ Q2 2023 credit card expenditure was $2,100, a 1.5 percent increase year-over-year. Even subprime consumers spent an average of $1,300, a four percent rise from the previous year, despite a 2.8 percent decrease in the amount paid towards monthly card balances.

The demand for new credit cards continued to grow too, with Q2 2023 seeing a 17 percent year-over-year increase. The hike in credit demand from prime and below consumers rose by 15 percent, and even better-than-prime consumers recorded a 12 percent increase. Correspondingly, lenders also experienced a growth spurt, reporting a 12 percent year-over-year increment in origination volumes. This suggests an elevated risk appetite among lenders, evident from a 16 percent increase in below-prime originations and a six percent growth in prime and better originations.

Fabian further elaborated on how the obligation of additional minimum payments has strained household finances. Dubbed as “payment shock,” it refers to an abrupt, often unforeseen rise in minimum payments, which has grave implications as consumers are forced to decide on resource allocation and in worst-case scenarios, prioritize bill or debt payments.