Cost of living, unemployment factors in record-breaking Canadian consumer debt

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TORONTO — Consumer debt rose to a record $2.5 trillion in the third quarter as many Canadians continue to struggle with high living costs and rising unemployment, new surveys from two credit bureaus say.

Newcomers and consumers who borrowed money for the first time in the past 12 to 36 months saw the biggest rise in missed payments, compared with the same consumer group last year, Equifax's report published Tuesday, showed.

"Recent newcomers to Canada are facing challenges in navigating the Canadian financial economy. Historically, newcomers have demonstrated strong credit performance in the first few years of being in the country," said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, in a statement.

"However, rising unemployment levels combined with high inflation in the last few years has likely added significant financial pressure to this group," she added.

The bureau said more than 1.3 million consumers missed a credit payment in the third quarter, up 10.6 per cent from a year ago.

Despite an elevated delinquency rate, Equifax said the pace of missed payments has begun to slow following recent interest rate cuts.

Another credit bureau, TransUnion, said on Tuesday total consumer credit debt rose 4.1 per cent in the third quarter year-over-year as more gen Z consumers entered the credit market -- making them the fastest-growing segment to carry an outstanding balance.

It said about 45 per cent of the total household debt in Canada is held by millennial and gen Z consumers, who hold $1.1 trillion in outstanding balances.

TransUnion also said consumers are now facing higher minimum payments, especially for mortgages, which have risen 11 per cent year-over-year.

Equifax said auto loans were one of the biggest drivers of rising consumer debt, with non-bank auto loans up 12 per cent and bank auto loans up 2.7 per cent year-over-year in the third quarter.

Oakes of Equifax Canada said small affordability improvements in the auto market such as moderating car prices and easing financing rates are leading to increased demand for vehicle purchases.

TransUnion forecasts auto loan sizes in 2025 will remain flat as lower interest rates will offset high average vehicle costs, while overall auto delinquencies are expected to improve slightly next year.

Average credit card balances are expected to grow 3.9 per cent to $3,320 among prime and above consumers by the end of the year next year, TransUnion said. Those below prime risk tiers could see an increase of 1.6 per cent or $9,231.

"Though pockets of stress may linger, the continued improvement of macroeconomic conditions, such as inflation and interest rates, is expected to ease pressure on consumer wallets," Matthew Fabian, director of financial services research and consulting at TransUnion Canada, said.

This report by The Canadian Press was first published Nov. 26, 2024.