Canadians Debt-to-Income Ratio Drops in First Quarter of 2016

Canadians' debt-to-income ratio down ... slightly

It’s not a huge difference, but the debt-to-income ratio of the average Canadian trickled down a touch from 165.4 per cent in the fourth quarter of 2015 to 165.3 per cent in the first quarter of this year. The numbers, released in mid-June by Statistics Canada, show that for every dollar of disposable income a Canadian has, he or she owes an additional $1.65.

Laurie Campbell, CEO of Credit Canada Debt Solutions told the CBC that this is still the highest debt level that this country has ever reached, while BMO senior economist Benjamin Reitzes says the decline was the smallest in the past seven years.

What’s more is that Canadians as a whole owe almost as much as the worth of the country’s entire economy – and it doesn’t even include government debt.

What do Economists Predict Going Forward?

Campbell predicts bankruptcy numbers will increase, with figures already beginning their ascent in both western and Atlantic Canada. Meanwhile, Reitzes says Canadians should not be fooled by the 0.1 per cent improvement because household debt is inching toward becoming 100 per cent of nominal GDP – the current market value of the country’s gross domestic product. He predicts it will have risen again in the second quarter.

However, Reitzes adds that the good news is that asset growth is strong and that Canadians have an average of $5.92 in assets for every dollar of debt, something that suggests that households are in “okay” shape. That can be linked to the rise in home prices. Statistics Canada says household net worth rose by 1.2 per cent in the first quarter to a total of $9.633-trillion.

What this Means for Homebuyers, Homeowners

Of the more than $1.93-trillion in total household debt reported by the government, most of that is made up of mortgage debt. And with no indication that the Bank of Canada’s key rate will rise in the near future, it’s likely that household debt will continue to grow. The Canadian Real Estate Association says 2017 could see a levelling off in the market based on figures showing that home sales as a whole were down 2.8 per cent in May from the month before.

For the time being, though, there’s still plenty of homes changing hands. Year-over-year sales rose 9.6 per cent in May, while prices were up 13.2 per cent from the same time in 2015. The CREA says the markets are expected to remain strong throughout the remainder of 2016, meaning Canadian debt levels will continue to rise – especially for new homebuyers.

So How Can Canadians Start Paying down that Debt and Saving More?

For current and future homeowners, it’s a good idea to make sure you’re getting the best rate when it comes to your mortgage. If you feel you’re paying too much or the current payment schedule doesn’t meet your needs, it’s best to check out what other options are available.

It may also be time to apply for a new credit card with a low interest rate, or one that will either give you cash back or help you earn points toward free groceries, gas or travel. For example, the TrueLine MasterCard Credit Card carries a 9.99 per cent interest rate – that’s about 50 per cent lower than a standard card. Others, such as the SimplyCash Card from American Express offers five per cent cash back. And if it’s points you’re after, consider the President’s Choice Financial MasterCard which will help you earn free groceries.

Reviewing both your mortgage and credit cards from time to time can help put more money back where it belongs – in your wallet.

Related Topics

Credit Card Debt / Home Ownership / Lifestyle / Mortgage News / Mortgages / Personal Finance / RSM News

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