Debt rises as four in ten face insolvency—what should advisors prioritise now?

The latest MNP Consumer Debt Index, conducted quarterly by Ipsos, rose to 88 points, up nine points from the previous quarter.  

The increase signals renewed optimism in Canadians’ financial outlook following two Bank of Canada interest rate cuts this year, according to Grant Bazian, president of MNP LTD. 

However, financial caution remains high. The survey found that 74 percent of Canadians have cut back on spending, with women (77 percent) and those aged 35–54 (81 percent) the most likely to do so.  

A similar proportion (73 percent) said they are delaying major purchases or investments. 

Bazian noted that while uncertainty remains around US tariffs, their “on-again, off-again nature may be providing Canadians with some optimism for the future—especially since these tariffs have yet to make a full impact on household budgets.” 

Although the interest rate environment has offered some relief, 60 percent of respondents remain concerned about rising interest rates—a figure near record highs.  

However, fewer Canadians are worried about their ability to repay debts even if rates decrease (43 percent, down 7 points).  

Meanwhile, 24 percent feel better equipped to handle a one-percentage-point rate increase (+4 points), and only 21 percent now feel less prepared (-6 points). 

More than half (52 percent) still worry they could fall into financial trouble if rates rise, and 38 percent fear an increase could push them toward bankruptcy. 

Bazian observed that “lower interest rates, along with the budget adjustments Canadians have already made, seem to be providing some breathing room.” 

The survey also showed that 81 percent of Canadians are now more cautious about taking on new debt, a trend consistent across gender, income, age, and region.  

In addition, 58 percent believe they can cover living expenses over the next year without needing more credit—an increase of 9 points. At the same time, fewer regret the amount of debt they’ve taken on (43 percent, down 6 points). 

Bazian said Canadians’ net personal debt rating (positive minus negative) rebounded 14 points from last quarter’s all-time low.  

The proportion of Canadians just $200 or less from insolvency dropped to 43 percent (-7 points), while those already insolvent declined to 26 percent (-9 points). 

Still, “four in ten Canadians report being on the brink of insolvency, and more than a quarter have no financial cushion, no flexibility, or wiggle room in their budgets. Individuals without a safety net will likely face economic hardship when faced with rising costs and housing expenses, or a potential loss of income,” Bazian said. 

Half (50 percent) of Canadians say they now rely more on financial advice and planning, reflecting a growing demand for support in managing debt and budgeting during economic instability.   

So what should financial advisors do? 

Given the combination of rising caution, persistent insolvency risks, and looming mortgage renewals, financial advisors play a pivotal role in steering clients through economic uncertainty.  

Here are specific steps experts suggest: 

Revisit financial plans regularly 

Ensure that long-term financial goals, insurance coverage, and investment allocations still align with clients' current income and expenses. As markets shift and clients’ personal situations change, plans need to adapt (B.E.W. Investments). 

Prioritise emergency funds 

Encourage clients to build or top up their emergency savings. Experts such as Ramit Sethi advise aiming for up to 12 months of expenses to provide cushion against job loss or rate shocks (Business Insider). 

Create cash flow buffers and strategic budgets 

Help clients segment needs from wants. Triage spending categories and identify fixed vs discretionary items. Use spending reviews to redirect cash into savings or debt repayment (Forbes). 

Educate on behavioural finance 

Assist clients in understanding their emotional relationship with money. Emphasise calm decision-making and provide context when markets or headlines cause fear (Alleo). 

Stress-test mortgage renewals and debt repayments 

Use interest rate scenarios to model future payments. Identify households at risk of unaffordability and introduce contingency options such as refinancing or amortisation extensions (Mortgage Professionals Canada). 

Recommend consultations with Licensed Insolvency Trustees if needed 

Bazian reminds Canadians that these professionals offer free consultations through MNP’s 200+ offices and can advise on debt consolidation, consumer proposals, and bankruptcy.