Canadians turn to credit cards as many face payment shock

A new TransUnion report showed a consistent rise in borrowing among Canadians in the second quarter as they contend with the higher cost of living.

The increased borrowing could become a problem: a separate report released Tuesday from the Chartered Professional Accountants of Canada showed some Canadians may be overestimating their ability to manage their finances and pay off their debt.

While the number of consumers adding to their credit balances rose across the board in Q2, the TransUnion report said the riskiest segment, or subprime borrowers, saw their balances rise the most at 8.9% year-over-year.

The report said higher average credit balances among consumers could be attributed to higher spending habits and elevated interest rates on variable-rate loans that are eating into household budgets.

Demand for new credit grew 17% compared with last year, TransUnion said.

The combined pressure of inflation and higher interest rates has created a payment shock, according to Matthew Fabian, director of financial services research and consulting with TransUnion.

The report said total Canadian household debt reached $2.3 trillion in the second quarter, up 4.2% compared with last year, largely driven by mortgage debt.

The CPA Canada report, meanwhile, suggested many Canadians may be ill-equipped to manage their heavier debt loads.

The CPA report said 47% of people graded their personal finance skills as an A or B but a quarter of them also admitted to buying things they can’t afford.

The report highlighted other disconnects in personal finance management. One-third (33%) of respondents with consumer debt said they don’t understand the impact of fluctuating interest rates on their loans.

The survey, which was conducted online by Ipsos from June 16-23, showed 57% of respondents with non-mortgage debt have carried a credit card balance in the last two years.

The report also found that one in four Canadians say they wouldn’t be able to come up with $500 in cash within a day without borrowing or selling a possession, which is a sign of struggle with cash flow.

Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.