Canadian Credit Card Debt Soars Amid Cost-of-Living Crisis

A new TransUnion report highlights an alarming trend: an increasing number of Canadians are struggling with ballooning credit card balances as the cost-of-living crisis and higher interest rates strain household budgets.

The report, published Tuesday, reveals that the number of Canadians paying only the minimum monthly amount on their credit cards increased by eight basis points to 1.3% in the first quarter compared to last year. Matthew Fabian, director of financial services research at TransUnion Canada, noted that many household incomes are not keeping pace with inflation and rising interest rates, forcing more people to rely on credit.

“Consumers that have had significant increases in their mortgage payments have made that deliberate trade-off to pay less on their credit card and, in some cases, they’re missing their payment,” Fabian said. “We’ve seen a higher delinquency rate in credit cards for those consumers that have mortgages than traditional credit card consumers.”

Total consumer debt in Canada reached $2.38 trillion in the first quarter, a slight decrease from a record $2.4 trillion in the fourth quarter but still higher than the $2.32 trillion reported in the same quarter last year. The report noted that 31.8 million Canadians had one or more credit products in the first quarter, a 3.75% year-over-year increase driven primarily by newcomers and Gen Z signing up for their first credit products.

Notably, outstanding credit card balances for the Gen Z cohort surged by 30% compared to the previous year. “The younger generation is only getting access to credit for the very first time in their life,” Fabian explained. “They’re still learning how to use it, they’re still learning what it means to pay your monthly obligations.”

Millennials, meanwhile, held the largest portion of debt in the country, accounting for about 38% of all debt.

This is likely due to higher credit needs as they age, buy homes, and take out auto loans. “They’re in the life stage where they’re probably having children, getting houses, and have auto loans,” Fabian said. “The structure of the debt is shifted where 10 years ago, the majority of them would have had credit cards and car loans.”

Despite these trends, Fabian expressed confidence in the resilience of Canadian households, particularly regarding mortgage payments. He credited the strict screening process established by the banking watchdog to qualify for a mortgage for preventing widespread defaults. “Cash-strapped consumers will typically pay their mortgage first at the expense of other credit products like their auto loan or credit card,” he noted.

While there are concerns about missed payments among the most vulnerable populations, Fabian said, “We’re still seeing pretty decent resiliency in the Canadian consumer base, especially when you look at how quickly it’s grown with Gen Z and the volume of credit participation.” He added that anticipated interest rate cuts as early as June could help alleviate some of the financial burdens on households. “Our expectation is that the market will start to correct back to normal,” Fabian concluded.