Relying on credit cards is part of a debt spiral for struggling Canadians
Struggling Canadians who lose control of their finances are likely to have built up significant credit card debt.
A new report shows that the average credit card debt of insolvent debtors in 2024 surged to $20,398, a 26% increase year-over-year, the largest since Hoyes, Michalos & Associates Inc. began their research in 2011.
The insolvency firm found that credit card balances make up more than a third of total unsecured debt among insolvent debtors with Millennials showing the largest increase in this regard year-over-year.
"The dramatic rise in credit card debt tells a troubling story about the financial health of Canadian households," said Doug Hoyes, Licensed Insolvency Trustee. "We're seeing consumers increasingly relying on credit cards not for discretionary purchases, but to cope with basic living expenses in the face of persistent inflation and higher interest rates."
The amount owed overall by insolvent debtors rose 12% year-over-year in 2024 to $60,678 and the study found that higher-income groups are far from immune from insolvency with 54% of all filers having a monthly household income of at least $3,000.
Homeowner struggles
Homeowners are also an increasing part of Canada’s insolvency story.
"Homeowner equity has dropped dramatically, from 21% to just 10% in 2024, with one in seven insolvent homeowners now experiencing negative equity," added Hoyes. "With a wave of mortgage renewals approaching at higher interest rates, we're particularly concerned about homeowners relying on credit cards to maintain their mortgage payments."
The firm is concerned about the spread of financial stress, especially as economic uncertainty adds to the concerns of under-pressure households.
"The combination of persistent inflation, higher interest rates, and new trade pressures creates significant risks for the Canadian economy," concluded Hoyes. "These conditions suggest we're likely to see even more households struggling with unsustainable debt loads in the months ahead, particularly if economic growth stalls."
