Household debt rises to $2.34 trillion in Canada as average credit card balance jumps to $4,000: TransUnion report

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With the cost of living consistently on the rise, more Canadians are continually turning to credit, with the average credit card balance now standing at $4,000, according to a new report from TransUnion.

Data that came from the TransUnion’s Q2 2023 Credit Industry Insights Report shows a 4.2 per cent increase, or $94.8 billion, in Canadian household debt compared to the previous year, with a total debt of $2.34 trillion for Canadians.

According to the report, this growth was primarily fueled by mortgage loan debt, which has maintained a consistent pace of growth for the fifth consecutive quarter at a nine per cent year-over-year increase, as existing home sales rebounded.

To assess Canadians' financial management and debt handling, TransUnion examined demand, supply, consumer behaviour, and performance for its Credit Industry Indicator metric. In the second quarter of 2023, this analysis resulted in Canada achieving a Credit Industry Indicator score for of 106, marking a 1.6-point increase compared to the same period in 2022.

However, the current Credit Industry Indicator levels are in line with pre-pandemic levels, with a slight year-over-year increase driven by increased credit demand.

According to the report, increased debt levels and rising interest rates have led to increased minimum payments, placing additional strain on already financially stressed consumers.

The report also highlights that while Canadian credit consumers have historically shown resilience, there are now signs of some individuals, such as Gen Z, who are in their early careers struggling in this higher interest rate environment.

“Canadians, like the economy, remain persistently resilient,” Matthew Fabian, director of financial services research and consulting at TransUnion in Canada said in a press release.

“However, the combined pressure of a high cost of living and elevated interest rates has created a payment shock, as the cost of debt has grown even heavier for some Canadian households. While some financial pressure has been offset through continued savings growth and strong employment, many Canadian consumers have accessed credit as a means to short-term liquidity.”

Data shows that the number of Canadians with credit card debt went up by 3.3 per cent in the first quarter of 2023, and consumers in all risk categories are accumulating more debt with the riskiest group, subprime consumers who have lower credit scores, seeing an 8.9 per cent year-over-year increase in their debt levels.

According to the report, there has been a nine percent increase in average consumer balances across credit products, surpassing $4,000. This is mainly due to higher spending habits, with the average consumer spending $2,100 on their cards in the second quarter of 2023 (a 1.5 per cent increase from the previous year). Even consumers with lower credit scores have upped their spending to $1,300, up by four per cent year-over-year. However, as spending rose, the amount consumers paid toward their card balances each month decreased by 2.8 per cent year-over-year.

The data also shows that the demand for new credit cards continued to rise, with a 17 per cent increase in the second quarter of 2023 compared to the previous year. Specifically, demand from prime and below consumers increased by 15 per cent, while better-than-prime consumers saw a 12 per cent growth in credit demand.

When it comes to lenders, the report shows that they responded by experiencing a 12 per cent year-over-year growth in origination volumes. This signifies an increased risk appetite among lenders, with below-prime originations growing by 16 per cent and prime and better originations increasing by six per cent.

“This additional minimum payment has stressed some household finances, forcing consumers to make trade-offs in terms of how much they can allocate to cover additional debt,” Fabian explained. “The sudden and often unexpected rise in minimum payment is referred to as payment shock and can have dramatic consequences as some consumers are forced to decide how to allocate discretionary income and, in some cases, which bills or debt to pay.”

Reporting for this story was paid for through The Afghan Journalists in Residence Project funded by Meta.