Canada’s household debt…is spiraling out of control. Its debt load is the highest of the seven leading economic countries. The debt-to-income ratio is 174% with the average household carrying a debt of more than $22,000.
After a decade of easy credit, Canadians are finding it difficult to make even minimum monthly payments or interest payments. The slightest financial emergency can turn a difficult situation into a long-term disaster. Canadians are scared, and rightly so.
Canada wasn’t always in a state of unmanageable debt. It weathered the 2008 financial crisis reasonably well. However, like many other countries post-2008, it substantially lowered its interest rates, sparking a run on easy borrowing.
Thus far, the delinquency rate remains at below 1% but, never the less, over 31,000 Canadian households have filed for bankruptcy during the fourth quarter of 2018 alone.
- Auto loan delinquencies are the highest since 2008. Many Canadians are leasing instead of buying, with leases accounting for 36% of all auto loans.
- The housing market has dropped…raising some major concerns in a country already overburdened with debt. Home equity borrowing…accounts for 11% of total household debt…
- Student loan debt stands at $28 billion, with many struggling just to make interest payments.
- Canadians finding themselves in emergency situations have turned to payday loans and are now facing enormous interest payments…
Fortunately, Canada’s labor market is still relatively strong…[but when] it faces a recession, as it eventually must, the high household debt could prove a disaster for many.