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Credit card debt in Canada hits record high amid inflation and interest rate hikes

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Canadian credit card balances reached an all-time high of $107.4 billion in Q2 2023, indicating increasing financial stress due to inflation and rising interest rates, according to a report by Equifax (NYSE:) Canada. The agency also reported that total Canadian consumer debt hit $2.4 trillion during the same period.

Rebecca Oakes, Vice-president of advanced analytics at Equifax Canada, attributed the surge in non-mortgage debt to a significant increase in credit card balances and rising debt among subprime and deep subprime consumers. The average non-mortgage debt per credit-active consumer climbed to $21,131.

Despite the mounting credit card debt, delinquencies aren’t escalating as rapidly as anticipated. This is partly due to an influx of new credit card users, which also contributed to the overall growth in non-mortgage debt. However, Equifax noted that many Canadians are slowing down their credit card spending, with lower-income households finding it more difficult to curb spending.

Oakes explained that factors such as substantial house price increases, larger loan amounts, a higher proportion of variable-rate mortgages, and the elevated cost of living have contributed to the rise in delinquency. She added that payment shocks for newly renewed mortgages and upcoming renewals are set to impact consumer finances.

Meanwhile, a study by RBC Economics indicated that Canadian spending is slowing due to debt pressures. This slowdown coincides with a slight increase in the unemployment rate.

On another note, TransUnion (NYSE:)’s Q3 Credit Union Market Perspectives Report revealed that high interest rates have reduced new credit union credit account originations. However, borrowers continue to leverage existing credit lines as balances across most credit products grow, particularly personal loans and home equity loans.

Sean Flynn, senior director of community financial institutions at TransUnion, explained that inflation and cost-of-living challenges have led many credit union members to use credit products as a way to get by. He added that rising interest rates over the last year have caused consumers to avoid originating new loans and lines of credit, instead opting to leverage existing ones.

Despite these challenges, delinquencies continue to remain flat among credit union borrowers, at 0.78% across products in Q2 2023. This represents the second consecutive quarter of modest declines, down from 0.83% in Q4 2022.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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