The average credit card balance in the country has surged to its highest level in 17 years, highlighting a significant increase in consumer debt. In the second quarter of 2024, the average credit card balance climbed to over $4,300, pushing the total outstanding credit card debt to $122 billion—an alarming 13.7 percent higher than the previous year.
This surge in debt comes amidst a backdrop of relatively stable inflation and easing interest rates. Despite these seemingly positive economic indicators, there has been no corresponding improvement in the financial metrics related to credit cards, mortgages, and auto loans. A key factor contributing to this situation is the deteriorating employment landscape in Canada. With rising unemployment, many Canadians are experiencing increased financial stress, especially younger adults who are feeling the effects most acutely.
The increase in credit card debt is partially driven by a flattening in consumer spending combined with a decline in the payment of full credit card balances. Although spending patterns have remained steady, fewer individuals are managing to pay off their credit card balances each month. This issue is particularly pronounced among those under the age of 35, who have seen the most significant drop in their monthly credit card payments.
Further analysis reveals that younger Canadians are facing heightened financial pressure, with those aged 26 to 35 experiencing the highest rate of missed payments on credit products other than mortgages. This demographic’s struggles are reflected in higher delinquency rates for car loans and lines of credit, underscoring the broader financial challenges faced by this age group.
The housing market remains another critical area of concern. Credit card balances for mortgage holders have increased more sharply than for other groups, and average mortgage loan amounts have risen by 6.1 percent over the past year. This escalation in mortgage debt has been exacerbated by ongoing affordability issues in the housing market, with many regions in Canada having reached record levels of unaffordability earlier this year.
Although there have been some recent reductions in mortgage interest rates, these changes have not yet significantly eased the financial burden on consumers. The proportion of mortgage renewals with increased monthly payments has doubled compared to previous years, indicating that many Canadians are still dealing with the financial impact of higher mortgage rates.
Overall, while there is cautious optimism that further reductions in interest rates might eventually offer some relief, the path to financial stability for many Canadians is likely to be slow and fraught with challenges. The combination of rising debt, stagnant wages, and persistent housing affordability issues continues to strain household finances across the country.
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