Bank of Canada Governor Mark Carney has repeatedly warned Canadians to simmer down on their borrowing costs – but that hasn’t stopped us from racking up a new 8-year record high debt level. According to credit bureau TransUnion, average Canadian debt levels (excluding mortgages) reached $26,221 in the second quarter – an increase of $192.
A Precarious Position
Despite persistent scoldings for household debt levels from the government (and this summer’s mortgage rule changes in efforts to drive them down), the BoC’s record low interest rate isn’t exactly helping the cause. While traditional post-recession tactics include raising interest rates to discourage excessive borrowing, Europe’s debt crisis has kept the BoC’s hands tied. As a result, borrowers just can’t help but take advantage, and we’re set up in a house of cards should those rates – or unemployment – go up.
In a quote to the Toronto Star, TransUnion Vice President Thomas Higgins says, “Not to say that Canadians don’t listen to Governor Carney when he says debt loads are too high. But it doesn’t resonate as much as if they hear interest rates are going to go up because that translates to a cost out of their own pocket.”
Delinquency is Down
The good news? While we may be racking up debt, at least we aren’t defaulting on it. Delinquency and default levels are actually down from 2008 recession levels, and bankruptcy levels are balancing from their 2009 peak. However, this positive uptick could be reversed once interest rates rise.
Breaking Down The Debt Numbers
So what’s behind these astronomical debt levels? Here’s where Canadians are borrowing the most:
Auto Loans: Car purchases have been on the rise post-recession, rising 3.67 per cent from the previous quarter, and 13.25 over the last year – that’s an average of $18,881 per person.
Credit Card Debt: While this declined from Q1, it’s still higher than last year’s levels at an average of $3,556 per person.
Loans: Other than mortgages, lines of credit are the biggest Canadian debt heavyweight with an average of $33,721 per person, and installment loans at $22,493 per person.