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Credit card debt up 15 per cent in Q4, younger Canadians feel hardest pinch: Equifax

TORONTO — Canadian credit card debt soared in the last three months of 2022 amid rising interest rates and stubbornly high inflation with younger Canadians in particular relying on credit to make ends meet.
Credit cards shown on Thursday, Oct. 6, 2022. As interest rates rose and inflation remained stubborn, Canadian credit card debt soared in the last quarter of 2022 with younger Canadians in particular relying on credit to make ends meet. THE CANADIAN PRESS/Andrew Vaughan

TORONTO — Canadian credit card debt soared in the last three months of 2022 amid rising interest rates and stubbornly high inflation with younger Canadians in particular relying on credit to make ends meet.

Canadians’ credit card debt increased by more than 15 per cent from the same period a year earlier and totalled more than $100 billion for the first time, credit monitoring agency Equifax said Thursday.

Slowing debt payments and rising balances point to a "hard time in 2023," said Laurie Campbell, director of financial wellness at debt relief firm Bromwich and Smith.

"We haven't seen incomes rise to the extent of inflation," she said. "People are using credit ... to bridge the gap between income and expenses." 

Overall consumer debt rose in the fourth quarter of 2022, with total debt at $2.37 trillion, up more than six per cent from the same period in 2021, the agency said in its latest quarterly credit trends report.

Equifax said the effects of higher interest rates are yet to be fully felt by homeowners as many have not yet renewed their mortgages, but younger Canadians are feeling the pinch of inflation particularly hard. 

The financial stress on Canadians is apparent in the latest data, especially for non-homeowners, said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada. 

"We are seeing pockets of financial stress starting to come through," she said, noting that insolvencies and missed payments on credit products are climbing. 

While mortgage debt makes up three-quarters of all consumer debt, and the cost of that debt has been rising with interest rate hikes, consumers are struggling with non-mortgage debt such as credit cards, Equifax said.

Non-mortgage debt levels were up 5.4 per cent in the fourth quarter, but for millennials that debt rose by 8.4 per cent. 

The growth in non-mortgage debt was driven by increased credit usage and reliance on credit cards, Equifax said. Consumers younger than 35 saw the biggest movement in credit card debt, and more than 1.4 million new cards were issued during the fourth quarter, a high volume that Equifax said contributed to the higher balances. 

People without mortgages tend to be younger and/or have lower incomes and less savings, which is likely why they are struggling more with non-mortgage debt such as credit card debt, said Oakes. 

"They're starting to struggle a little bit and the challenge is, inflation isn't coming down fast enough," she said. 

"They're relying on the credit card more, and they're maybe starting to miss payments a bit more."

Consumers without mortgages saw the greatest jump in missed debt payments in the fourth quarter, Equifax said. The proportion of those who missed a payment on a credit product in the fourth quarter was up 11 per cent from a year earlier, compared with six per cent for consumers with a mortgage.

Meanwhile, the delinquency rate among those aged 18 to 25 rose almost 31 per cent year over year, compared with a 17 per cent increase across all consumers. 

Even as credit card payments slowed, credit card usage remained high, Equifax said, with more than 300,000 consumers using their card and carrying a balance on it. 

The fact that payments are coming down while balances rise is "an early warning sign," said Oakes. 

When Canadians are unable to pay more than the minimum payment on their cards or start missing payments while continuing to spend with credit, it can become a "vicious cycle," Campbell said.

"Once people start getting into those delinquencies, it's very hard to get out of it. And interest does start to accumulate to an extent that it feels like they're only paying interest, and they can never get out of debt," she said. 

Consumer insolvencies were up 33 per cent year over year in January, and up more than 14 per cent from December, according to the Office of the Superintendent of Bankruptcy. 

In a press release, the Canadian Association of Insolvency and Restructuring Professionals said that financially vulnerable Canadians may turn to credit cards or lines of credit to bridge gaps in their budgets, putting them at further risk. 

Canadians who hold mortgages are starting to feel the pinch, though for some it may be delayed until they refinance, noted Equifax. 

The average mortgage holder was paying $170 more monthly than they did before the pandemic, and the agency expects this figure to rise further as more mortgages come up for renewal. 

Other debt products with variable rates, like home equity lines of credit, saw minimum monthly payments rise 24 per cent compared with pre-pandemic levels.

But she expects to see homeowners increasingly feel the effects of higher rates as between 450,00 and 500,000 Canadians will renew or refinance their mortgages in 2023, at similar levels to 2022.

"It takes time for the full impact of high interest rates to come through," she said. 

This report by The Canadian Press was first published March 9, 2023.

The Canadian Press