With budgets under pressure, leaning on cards is a risky strategy
With the cost of living pushing expenses above income, millions of Canadians are relying on credit to try to make ends meet, but in time this can be their financial downfall.
The situation is highlighted in a new report from licensed insolvency practitioners Sands & Associates who have looked at those struggling with debt in British Columbia, with findings likely to be echoed across the country.
Of the 1,700 people who had recently filed for insolvency in BC, credit card debt was by far the single largest source of their debt. Three in five respondents (58%) said that this was their main type of debt, more than five times the number who said it was payday or instalment loans (12%).
The study shows how things can suddenly change for Canadian households, with 30% of poll participants saying that their credit score was good or excellent when they filed for insolvency, and 27% saying their debt was caused by overextended credit due to general financial mismanagement.
The cost of living has pushed many into using often-costly forms of credit. A quarter of respondents said they used credit for essential living expenses that their income could not cover and almost all said that inflation has impacted their household finances.
Illness, injury, or health-related problems (11%); marital or relationship breakdown (7%); job-related issues (5%); and pandemic-related loss of hours or job were other commonly cited reasons for debt.
Debt red flags
Seven in ten respondents said they knew their debts were becoming a problem due to overwhelming stress while only making minimum payments and not seeing balances reducing each month were other red flags.
Many of those with crippling debts said it was affecting their mental health with most thinking about the state of their finances every day. Withdrawing from friends and family and relationship issues are common along with feelings of anxiety and depression, while some have had suicidal thoughts.
“We aim to expose the realities of the severe financial challenges that people across the province are currently facing,” said Sands & Associates president Blair Mantin. “The self-blame, shame, and isolation many people coping with a debt problem experience often stops them from seeking support. It’s important to us as industry leaders to bring these facts to light, and let people know that more than anything or anyone else – you owe it to yourself to get debt help.”
