Canadians Are Back To Spending A Record Amount of Income Servicing Debt

Canadian households are back to devoting a record amount of income to support their debt habit. Statistics Canada (Stat Can) data shows the debt service ratio (DSR) reached a new high in Q3 2019. In the past 30 years, Canadians have never devoted this much income towards keeping debt in good standing. Even worse, virtually all growth is coming from paying more interest.

Household Debt Service Ratio

The household debt service ratio (DSR) is the percent of disposable income used to maintain debt. Disposable income is a household’s income after mandatory deductions such as taxes. Maintaining debt just means people are paying the minimum amount required to keep their debt in good standing. This is important to note, because if debt service ratios are growing, it also accounts for income growth. If the DSR is growing while income is making big gains, like last year, there’s a bit of an issue.

Canadians Devote A Record Amount of Income To Debt Service

Canadians reached a new record high for the amount of income they spend on keeping debt in good standing. The household DSR reached 14.96% in Q3 2019, up 0.94% from the previous quarter. It’s now 1.70% higher than it was just last year. There was a mild pull back from multi-year highs in Q2, but the DSR soared to a new record high in the recent quarter. Canadians are devoting the biggest percent of their income to debt, than they have in at least 30 years.

Canadian Household Debt Service Ratio

The percent of dispoable household income used for obligated debt service payments.

Source: Statistics Canada, Better Dwelling.

Household Income Devoted To Just Interest Grew By Over 5%

The debt trap is going off, as the interest paid to service the cheap debt borrowed begins to climb. The interest portion by itself, is 7.48% of the DSR in Q3 2019, up 1.22% from the previous quarter. Compared to the same time last year, this is 5.20% higher. This means income devoted to servicing debt interest is rising more than 3x faster than total debt. This is very, very fast growth – and that cheap money borrowed is beginning to catch up with people.

Canadian Household DSR (Interest Only)

The percent of dispoable household income used to just pay the interest portion of obligated mortgage debt service payments.

Source: Statistics Canada, Better Dwelling.

Canadian households are back to growing their DSR, after taking a brief break. Interesting though is interest paid is growing much faster than the total paid. This means virtually all growth is in the amount of interest being paid towards the debt. It also means fewer dollars are going towards paying down the principal.

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    • Ed Kolopolous 4 months ago

      What’s the logic behind this? US household debt is almost 50% lower than Canada.

      • Smaug 4 months ago

        And Canadian corporations are more indebted than US corporations.

  • Ethan Wu 4 months ago

    We’ve tried everything from giving people more money to take out debt, to making it easier for them to take out debt. Why isn’t anything working? 🙄

  • Party on 4 months ago

    The borrowing and spending binge by Canadian households, businesses, and governments (all levels) continues unabated. Growing the debt in the economy significantly faster than the economy itself grows seems to have developed into a way of life in Canada.

    At the end of September, 2019 the total debt outstanding in Canada (bottom line of the Statistics Canada credit market summary data table) was $8.565 trillion. At the end of September, 2018 the total debt outstanding was $8.174 trillion. In the 1 year period from the end of September, 2018 to the end of September, 2019 it increased by $391.3 billion. This is an increase of 4.8%.

    • Will 4 months ago

      Agreed. The West has been captured by banks, that have now convinced households the only way to grow an economy is through debt (which allows them to collect a percentage of all transactions going forward).

  • Holton 4 months ago

    Real estate bubbles never end well, its too late for Canada now

  • Herry 4 months ago

    NOTHING being done about corporate greed and corruption ! Canada = shxthole

  • Straw walker 4 months ago

    Corporations were able to pay off maturing corp. bonds with new bonds with much lower rates ..This would have been great but for one small problem.. Corporations got greedy and continued to borrow from the bond market, and are now heavily in debt..
    Especially oil comp. that saw this a means of expanding.. bad decision ..low oil and gas prices along with interest rates going higher ..will cause finical problems in this sector.

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