Consumer Debt Reaches Record High of $2.5T, According to Credit Bureaus

Consumer debt reached a record $2.5 trillion in the third quarter, as many Canadians grapple with high living costs and increasing unemployment, according to new surveys from two credit bureaus.

Newcomers and consumers who recently borrowed money for the first time saw the largest increase in missed payments compared to the same group last year, as indicated in Equifax’s report published on Tuesday.

Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, stated, “Recent newcomers to Canada are encountering challenges in navigating the Canadian financial landscape. Historically, newcomers have shown strong credit performance in their initial years in the country. However, recent years of rising unemployment and high inflation have likely added significant financial strain to this group.”

Equifax reported that over 1.3 million consumers missed a credit payment in the third quarter, a 10.6 percent increase from the previous year. Despite a high delinquency rate, Equifax mentioned that the rate of missed payments has started to slow down following recent interest rate cuts.

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Another credit bureau, TransUnion, reported on Tuesday that total consumer credit debt rose by 4.1 percent in the third quarter compared to the previous year, with more gen Z consumers entering the credit market, becoming the fastest-growing segment with outstanding balances.

TransUnion stated that approximately 45 percent of Canada’s total household debt is held by millennial and gen Z consumers, who have $1.1 trillion in outstanding balances.

Furthermore, TransUnion noted that consumers are facing higher minimum payments, particularly for mortgages, which have increased by 11 percent year-over-year.

Equifax highlighted that auto loans were a significant factor in the increase in consumer debt, with non-bank auto loans rising by 12 percent and bank auto loans by 2.7 percent in the third quarter compared to the previous year.

Rebecca Oakes from Equifax Canada mentioned that improvements in auto market affordability, such as stabilizing car prices and lower financing rates, have led to a higher demand for vehicle purchases.

TransUnion predicts that auto loan sizes in 2025 will remain steady as lower interest rates offset high average vehicle costs, while overall auto delinquencies are expected to improve slightly next year.

According to TransUnion, average credit card balances among prime and above consumers are projected to increase by 3.9 percent to $3,320 by the end of next year. Those in below prime risk tiers could see a 1.6 percent increase to $9,231.

Matthew Fabian, director of financial services research and consulting at TransUnion Canada, stated, “Though some areas of stress may persist, the ongoing improvement in macroeconomic conditions, such as inflation and interest rates, is expected to alleviate pressure on consumer finances.”