Understanding Average Household Debt in Canada

Understanding Average Household Debt in Canada

Debt can have serious long-term consequences, like ill-health, mental health difficulties, and bankruptcy.

The pandemic has changed many business and personal lives in Canada, and as we emerge into a new post-pandemic world, the debt news isn’t good. So, what is the average Canadian household debt? Let’s find out.

The Debt to Income Ratio in Canada

In late 2020, Statistics Canada reported that the average Canadian household owed $1.71 for every dollar of disposable income. This figure rose from 162.8 percent in the second quarter to 170.7 percent in the third quarter.

While employment is gradually returning to 3.7 percent of its pre-COVID levels, this is insufficient to help the rising debt levels.

So, what does this mean for Canadians?

Debt can have serious long-term consequences, like ill-health, mental health difficulties, and bankruptcy. At the same time, a growing number of Canadians live in poverty, and living costs continue to rise.

Canadians are still being left in the red by the end of each month, and an increasing number of households are being forced to seek help from a third party, such as the government, family, and friends.

It’s hard to imagine how anyone can manage the average household debt and IRCC’s new income requirements. The debt to income ratio and household debt in Canada are major causes of concern, and we will probably continue to see the levels increasing.

Statistics Affecting Debt-to-Income Ratio in Canada

• Mortgage Debt

In 2020, the demand for mortgage loans in Canada reached a new high, with people borrowing a total of $28.7 billion. This means that the overall Canadian mortgage debt has hit almost $1.63 trillion, according to Statistics Canada.

At the same time, the credit rating agency Equifax Canada reported that this amounts to an average mortgage debt per person of $73,532, a 2.2% rise from 2019. The average new mortgage debt in Canada reached $289,000 in 2019.

• Non-Mortgage Debt

Non-mortgage debt includes credit card debt, personal debt, overdrafts, store cards, payday loans, and in-store credit debt, among other things. People spent less wisely at the beginning of the pandemic, and credit card balances were reduced by 12.3 percent. However, the average Canadian non-mortgage debt has risen three percent to $23,035 on average.

As of 2020, Canadians owed a total of $789.5 billion in non-mortgage loans, with around 3 million deferring payments since February 2020. The average credit card debt in Canada was $3,330 in Q1 2021.

Many Canadians are struggling with personal finance, with 39 percent citing it as their main concern. This is higher than the 34% who cite workload and 23 percent who cite personal relationships.

How to Reduce Debt

To reduce debt and maintain financial flexibility, the best course of action is to budget for debt repayment, only spending what is necessary rather than what is wanted, and making all required household payments on time, including mortgage payments.

To save money on interest, consolidate debts onto one lower-interest loan. Also, consider a zero percent balance transfer credit card. Even though there’s a fee, it’s often cheaper than paying the interest on existing high-interest rates. 

Finally, cut back on expensive habits like buying coffee every day, smoking, and eating out for lunch.

Conclusion

The average household debt in Canada is on the rise, and Canadians are struggling with credit card and non-mortgage debts. Things will not get better soon, as many Canadians continue to struggle with debt and IRCC’s new income requirements.

Hopefully, Canadians will learn to live within their means and do their best to maintain good financial health.

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