Retirement is meant to be a time to relax and enjoy the financial fruits of long years of labour – but there’s growing concern that older consumers are relying more heavily on debt in order to make ends meet, according to a new report from credit-monitoring firm Equifax Capital.
According to the report, Canadian consumer debt rose 6.1 per cent to $77 billion in the second quarter of 2013. This is mainly due to an 8.6 per cent increase in auto loan balances and a 7.4 per cent increase in outstanding mortgage debt.
“The increased demand for credit outside of mortgages is positive for the economy in the short-term, but could limit the ability of over-extended consumers to react to any financial bumps in the road in the future,” says Cristian deRitis, senior director of Consumer Credit Economics at Moody’s Analytics.
Seniors Debt Accumulation Outpacing Younger Generations
But it’s the slow creep of debt among the 65-plus crowd that is the most troubling stat from the report.
According to the Equifax, the average debt burden carried by consumers aged 65 and over increased by 6.5 per cent compared to the second quarter of last year – higher than any other age group.
“The traditional golden years that retirees anticipated have not become a reality as debt loads rise for those over 65,” says Henrietta Ross, CEO of the Canadian Association of Credit Counselling Services. “With reduced incomes, often coupled with increased expenses, these individuals are accumulating more debt to boost income through credit so that they can continue to enjoy a pre-retirement lifestyle that they may no longer be able to afford.”
She also points out that as Canadians in general take on more debt, the older generations may be “be accumulating debt in an effort to help their own grown children or their own parents who are struggling financially.”
If that’s the case, seniors might want to connect with a financial advisor to help break the credit cycle as they move from the accumulation stage to the withdrawal stage.
Taking Out Debt… And Paying It Back
But it’s not all doom and gloom – the report points out that the instances of debt delinquency are declining, and have been for the past three years, down to a record low of 1.19 per cent. The delinquency rate refers to the percentage of loans within a loan portfolio that have outstanding payments.
Even Toronto, the region where debt was most likely to be shirked, has seen a major improvement, at 1.56 per cent of non mortgage debt compared with 2.53 per cent in 2010.
“Stable home prices and improvements in the labour market should continue to support the market in the future, while the outlook for consumer credit remains positive,” adds deRitis. “A sudden rise in interest rates or deterioration in fundamentals in key export markets are risks to this forecast however.”
Use Debt Payment Tools
For consumers battling a deep credit card debt cycle, one option is presented by low balance transfer credit cards, which often feature a very competitive interest rate on balances transferred from other cards – offering an interest break while paying down debt.
“As the fears of another recession slowly subside, consumers continue to accumulate high levels of debt but with more fiscal responsibility,” adds Regina Malina, Director of Modeling and Analytics at Equifax Canada.
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