Canadian Consumers Regret Huge Debt Loads, Struggling To Repay

Canadians are starting to feel the consequences of their debt addiction. MNP, Canada’s largest insolvency consultancy, released the results of its regular consumer debt survey. They found most consumers are struggling to repay their loans, and regret borrowing as much as they did. However, it’s not clear they could have prevented the borrowing if they tried. Most of this debt was apparently used to make ends meet, as wages fell behind the cost of living for the past few decades. 

Most Canadians Are Worried They Borrowed Too Much

Canadians have been on a world-renowned borrowing spree, and it may be catching up to them. Nearly two-thirds (63%) of people surveyed said they were worried about their ability to repay their loan. It’s not a recent issue though, with nearly half (47%) regretting the amount of debt they’ve borrowed throughout their life. A similar share is also concerned about the amount they currently carry. 

A sharp increase to the cost of living is a big driver of the issue, according to the firm. “With the cost of living on the rise, those households who were already overextended may feel they have to take on more debt just to afford basic necessities,” explains Grant Bazian, the president of the firm.  

Prior to 2020, consumers had seen very little real wage growth and a significant rise to their shelter costs. When the pandemic hit, inflation (and soaring shelter costs) left already stretched budgets even further behind. Credit is often the route used to make ends meet, with the problem getting worse the longer it persists. 

“The results can be disastrous because they end up trying to fill a hole by digging another one,” Bazian warns. 

Most Canadians Experiencing Anxiety As A Result of Debt

Sound like it would take its toll on mental health? Most of the respondents agree. 

“At some point, many realize that there is no clear path to repay what they have borrowed, no matter the time horizon or interest rate. This can often be an extremely isolating, stressful and sometimes embarrassing experience,” explains Bazian.

Respondents say their debt is causing anxiety (60%), with nearly half (48%) also finding it isolating—with 2 in 5 Canadians claiming they’re embarrassed about the amount they owe. 

“Spending on credit has served as a relief mechanism for many to keep up with increasing costs – especially for lower-income Canadians – and we see from the data that the burden of repaying that debt is exacerbating the growing financial strain for many households, particularly amid higher interest rates,” he explains. 

Low Rates Created A Ton of Debt, Higher Rates Make It Harder To Pay

Rising interest rates certainly don’t make it easier to repay debts, increasing payment size. Even the so-called “stress test” to ensure borrowers could repay their loans with higher rates, failed to prepare households for the amount rates increased. 

However, higher rates wouldn’t be the concern it is if Canadians had more moderate credit consumption. Prior to rising rates, and even the pandemic, there were significant concerns expressed by international organizations about the rapid credit expansion. That was only made worse by rate cuts that expanded the amount of leverage households could tap.  

Lowering rates may provide relief from current payments, but a fundamental problem still exists. Giving people access to more leverage only extends a lifeline, it doesn’t resolve the fundamental issue of wages failing to match cost of living growth.