Has your household debt reached new heights? If so, you’re not alone. A 2023 study by the Canadian Mortgage and Housing Association (CMHA) found that Canada has the highest level of household debt among G7 countries. Three-quarters of this debt is attributed to mortgages.
What does this mean for Canadians? According to Statistics Canada, the increase in the cost of living is reducing Canadians’ ability to save and build wealth. This is especially true for households with the lowest incomes, and those in younger age groups.
But what is the story in British Columbia? How does BC household debt measure up to the rest of the country, and what can residents do to manage the high cost of living?
Canadian Debt Statistics
Debt statistics from TransUnion’s Q2 2023 Credit Industry Insights Reports reveal that Canadian debt grew by 4.2 percent, or $94.8 billion compared to this time last year. The report also found an increase in the number of Canadians using credit. With a high cost of living and elevated interest rates, Canadians are turning to credit as a way to cover rising bills. The average credit card balance now sits at over $4,000, up 9% from last year.
Debt in British Columbia
British Columbia was recently ranked as the least affordable province in the country, according to a study by the financial website Savvy New Canadians. The estimated cost of living in BC was $79,591, with an average median household income of $97,800.
The average debt for BC residents sits at $21,765 as of Q2 2023. A slight decrease (0.80%) from the same time the previous year. Year-over-year delinquency rates also rose by 34%. This means, there was an increase in the number of people with debt that is past due.
What is contributing to the high cost of living and elevated household debt in BC?
Mortgage debt
The high cost of real estate is one variable that can’t be ignored. While the average cost of a home in Canada is $655,507, the average cost in BC is $969,306.
According to the CMHA, nearly three-quarters of household debt is from mortgages in Canada. As interest rates have continued to go up, this translates into higher mortgage payments for Canadians. Those with an upcoming renewal should prepare to pay more.
A recent poll from the Angus Reid Institute found that 76% of mortgage holders in BC are worried about their next mortgage renewal. Thirty-five percent were concerned that it would cost them significantly more, and 14% said they would lose money if they had to sell now.
Interest rates
While interest rates are greatly affecting the housing market, they are also having an impact on people’s ability to repay their debt. Any variable rate credit, including a line of credit, personal loan, or vehicle loan can rise and fall depending on the variable rate. As rates continue to rise, you might find that debt repayment is starting to eat up more of your disposable income.
Inflation
While inflation has subsided from its record high of 8.1% in May 2022, the effects are still being felt. BC residents are still paying elevated prices for everything from shelter to food, and personal care items. The average inflation rate for all items sits at 3.3%. With more BC household spending going towards daily essentials, there is often less left over for saving, investing, or simply paying off debt.
Consequences of High BC Household Debt
What are the consequences associated with a higher cost of living and elevated BC household debt?
Food insecurity
Food insecurity is one consequence. Findings from Food Bank Canada’s Hunger Count 2023 Report revealed that nearly 200,000 people in BC visited a food bank as of March 2023. This is up 20% from the previous year. Across Canada, the number of food bank visits reached nearly 2 million, up 32% from the previous year and 79% compared to March 2019.
Insolvencies in British Columbia
British Columbia saw an increase in consumer insolvencies in Q2 of 2023 compared to Q1. Bankruptcies rose from 497 to 534, and Consumer Proposals were up from 2,506 to 2,789. Consumer insolvencies are expected to continue to rise, and may potentially surpass pre-pandemic averages, according to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).
How to Deal With Rising Household Debt?
If you’re struggling to pay your bills or on the verge of insolvency, it’s time to speak with a Licensed Insolvency Trustee (LIT). An LIT has extensive and specialized training to help you navigate your debt. An LIT can also provide the widest range of debt solutions, including:
Credit Counselling
If you are still managing to pay your bills, but need help creating a budget or learning how to manage your credit, consider credit counselling. In a counselling session, you can work with an LIT to determine the root cause of your debt, and they can also provide targeted education and tips to help you manage your debt.
Consumer Proposal
In a Consumer Proposal, you work with an LIT to create an offer to your creditors to pay back a percentage of your debt, extend the time you have to pay, or both. As soon as you file the proposal, you can stop making payments to your unsecured creditors. If you are experiencing wage garnishment or collection calls, these will also stop.
Bankruptcy
While many people shudder at the idea of Bankruptcy, it is a process designed to give you a fresh financial start. In Bankruptcy, you are discharged from most of your debts. In exchange, many of your assets are sold to repay your creditors. Similar to a Proposal, when you file for Bankruptcy, all creditor lawsuits, wage garnishment, and collection calls will stop.
Gain Control of Your Debt – Contact an LIT
If your cost of living is out of control, you’ve maxed your credit cards to the limit, and you can no longer afford to pay your bills, it’s time to speak to a Licensed Insolvency Trustee (LIT). An LIT can assess your financial situation and recommend a debt solution to help regain your financial footing and rebuild your household savings. Give us a call at 1-888-371-8900, or reach us online for a free, no-obligation consultation.
