Global Courant 2023-06-01 03:22:00
Amid rate hikes and high inflation, more Canadians are turning to credit for relief, with consumer debt hitting a new all-time high in the first quarter of 2023.
In a new report released Wednesday by TransUnion, the amount of outstanding debt Canadians have accrued across all credit products has hit a new all-time high of $2.32 trillion.
The number of Canadians with access to credit rose to 30.6 million, up 2.9 percent from last year. Of existing credit debts, the number of consumers adding additional credit products increased by 6.2 percent. TransUnion says this is being driven by Gen Z consumers entering the credit market and new Canadians.
Higher credit balances drove higher monthly minimum payments and put pressure on consumers to use extra disposable income to cover payments on certain mortgages and lines of credit, which are vulnerable to interest rate fluctuations.
The average monthly line of credit payment rose to $436, up 43 percent year-over-year. While the average monthly mortgage payment rose to $2,032, up 15 percent year-over-year.
The average payment for credit cards was 2.6 times the required minimum. “This is a positive sign of healthy consumer behavior toward their payment obligations,” the TransUnion press release said.
The percentage of consumers in arrears of 90 days or more on any account, known as credit arrears, rose nine basis points to 1.57 percent. The report notes that despite the increase, the overall number of delinquencies remains below pre-pandemic levels.
“As disposable incomes come under more pressure, we expect that a segment of consumers will be more likely to miss payments, and default rates will rise as a result,” said Matt Fabian, director of research and advisory at the field of financial services at TransUnion in Canada. , in a press release Wednesday. “However, we expect any increase in default rates to be moderate and consistent with increased credit activity.”
TransUnions expects default rates to return to pre-pandemic levels at 2.19 percent in the first quarter of 2024.
“Overall, the financial position of Canadian credit consumers improved as they emerged from the pandemic, supported by higher savings accumulated during the pandemic and supported by a strong labor market,” added Fabian.
