Canadians vulnerable to ‘payment shock’ as debt and interest rates soar, experts say

0

Canadians are increasingly vulnerable to the “payment shock” as higher household debt levels come up against outsized interest rate hikes.

The Bank of Canada raised its key rate by three-quarters of a percentage point on Wednesday, making it more expensive to borrow money at a time of mounting debt.

It’s a situation that experts say could push some to breaking point as they rely on higher-interest loans and credit cards to pay for the rising cost of basic necessities.

Wes Cowan, Licensed Insolvency Trustee and Senior Vice President at MNP Ltd., says people are increasingly using credit cards and loans to make ends meet.

He says that given rising debt levels and rising interest rates, he expects to see more people struggling to make minimum debt service payments in the months ahead.

Meridian Credit Union senior wealth advisor Paul Shelestowsky says payment shock risk is front and center as people grapple with the confluence of high inflation and high interest rates .

“Anything with a variable rate, like lines of credit, we’re going to see a huge payment shock,” he says. “Everything is more expensive – groceries, heating your home, the essentials – and now servicing your debt will cost more too.”

Credit bureaus Equifax Canada and TransUnion Canada both released reports this week highlighting recent growth in household debt.

Equifax said total consumer debt rose 8.2% in the second quarter of 2022 compared to the same quarter last year.

Meanwhile, TransUnion’s latest credit industry report shows total debt hit an all-time high at $2.24 trillion, up 9.2% from the same period in 2021 and rising down 16.4% from pre-pandemic levels at the end of 2019.

The agency also said credit card balances and the risk of consumer default on personal loans have also increased.

This report from The Canadian Press was first published on September 7, 2022.

JOIN THE CONVERSATION

Conversations are opinions of our readers and are subject to the Code of conduct. The Star does not share these opinions.
Share.

Comments are closed.