Unsecured Debt on the Rise Among Canadians

The number of Canadians with unsecured debt jumped to 76%, up from 74% just a year earlier according to a survey done for RBC.

Fewer than a quarter of Canadians have been able to shed their personal debt, and those that owe, owe more than last year – on average, an increase of 21%. Albertans were the hardest hit, with their unsecured indebtedness rising 63% to $24,271.

Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, believes that Canadians are listening to the message to repay debt before an interest rate hike. Consumers are also becoming more conscious of the positive benefits of moving unsecured debt such as credits cards, to low interest facilities such as Home Equity Lines of Credit (HELOCs). In his interview, he states “[t]hey [consumers] are shifting their unsecured debt to secured debt. So from one perspective they are doing some positive money management, by paying lower rates on their debt.” However, he further goes on to say that “the big key here is to alter their spending habits [...]”.

The most up-to-date figures from Statistics Canada, released in September, demonstrated a key measure of consumer debt, the debt-to-income ratio of Canadian households, hit a new high of 163.4 in the second quarter, up from 162.1 in the first quarter, and diverging from the previous two quarters, which indicated that ratio was decreasing.

Diana Petramala, an economist with TD Bank, believes that the long-term trend will be growing household debt for Canadians, but at a more stable pace. She does affirm that although “[h]ouseholds have hit their debt wall […] I don’t think debt levels are excessive and unmanageable, because debt is still so affordable, but the overall appetite for debt has slowed.”

Ms. Petramala also noted that although credit card debt is decreasing, the auto loan segment of the industry is still strong.

The RBC poll also found that Canadians are worried about their debt levels; 38% are “very anxious” about their debt loads, up from 34% in 2012.

Geographically, the poll discovered a divide between Western and Eastern Canada. Debt levels rose sharply by 35% in the West, compared with 20% in the East.

In my opinion, the data from the RBC poll is easy to misconstrue. Unsecured debt in and of itself is not evil, nor is a high debt-to-income ratio (which, as I explained in a previous article is not an accurate measure of the financial health of Canadians when programs such as healthcare, social assistance etc. are added in). Factors such as spending and payment habits would provide a much more accurate understanding of whether unsecured debt in Canada is in fact a problem. Questions such as what was the debt used to purchase, are minimum payments being made, are payments late etc., provide more valuable data to recognize and analyze trends in debt among consumers. Furthermore, since Canadians are become increasingly aware of low-cost debt facilities such as HELOCs, it is also important to determine how those instruments fit into the question of consolidation and debt; it could very well be that a quarter of Canadians are debt free only because they are consolidating unsecured debt by way of cheaper secured debt, but this survey provides no indication of such. Another important factor to consider is that, in the case of Alberta, the floods may have contributed to such a vast increase in debt. Polls such as these offer limited usable data unless the questions being asked delve into the minutiae of spending and payment habits.

Regardless, if you’re thinking about making a switch, purchasing a home, or refinancing your mortgage, contact your REALTOR® & Mortgage Broker, or feel free to give us a shout, and We’ll be happy to chat.

Best Regards,

Goetz Kopf
REALTOR® and Senior Private Loan Specialist - Residential & Commercial
Century 21 Desert Hills Realty and EQ Lending Corp.

And

Daman Lehal
Broker/Owner of EQ Lending Corp

 

Goetz Kopf

Goetz Kopf

Associate
CENTURY 21 Desert Hills Realty (2010) Ltd.
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