Average debt owed surpasses $41,000 — and this doesn't include your mortgage! Insights on the rising debt levels in Canada, plus key solutions for financial confidence

Secured vs. unsecured debt

Debt can be categorized into secured and unsecured, with each type of debt carrying its own unique risks and considerations.

Secured debt, such as mortgages or car loans, is a loan that is backed by collateral, such as a house or a car. This means the value of the item backing the loan helps to guarantee the lender that the debt will be repaid using the collateral, if the borrower defaults on repayment.

Unsecured debt, including credit cards, are loans that rely on the borrower’s creditworthiness. This creditworthiness means that a borrower's income and current debt are part of the consideration when a lender decides how much a person can borrow and what interest rate the borrower will be charged.

When it comes to debt, a few key points and statistics should be considered:

• Rising property values and low interest rates have made mortgages a significant contributor to household debt.
• Canadians between the ages of 46 and 55 have the highest average household debt at $72,482 (excluding mortgages).
• Only 34% of Canadians live in mortgage-free homes, highlighting the prevalence of secured debt.

Unexpected vet bills don’t have to break the bank

Spot Pet Insurance offers coverage for treatment of accidents, illnesses, prescriptions drugs, emergency care and more.

Plus, their preventative care plan covers things like routine check-ups, microchip implantation, and vaccinations, if you want to give your pet the all-star treatment while you protect your bank account.

Get A Quote

Historical debt trends

Household debt in Canada has seen a steady increase since 1961, with total debt surpassing $1 trillion in the 2000s. Key drivers of this rise include changing societal norms around credit and economic shifts.

While debt has become normalized, proactive measures can help mitigate its impact:

• Use debt calculators to understand repayment timelines and interest costs.
• Explore debt consolidation or financial counseling to manage obligations effectively.

Consumer debt in Canada: Trends and challenges

Consumer debt continues to rise, driven by increased reliance on credit cards and personal loans. As of Q3 2024:

• Total consumer debt reached $2.5 trillion, marking a 4.1% increase year-over-year.
• Credit card balances rose by 13.7%, with outstanding balances totalling $122 billion.

Debt service ratio: A measure of financial health

The debt service ratio, which represents total household debt payments as a percentage of disposable income, is a critical indicator of financial health. In the second half of 2024, the debt service ratio decreased slightly from 15.0% to 14.7%, reflecting improved repayment capacity. However, the ability to pay down debt in recent years was impacted by a person's age and earning ability.

For instance, Canadians under 35 carried one of the largest average debts of $69,500, driven by student loans and early mortgage obligations. However, Canadians between the ages of 35 to 44 — peak earning and borrowing years — had the highest debt levels with an average debt of $105,100.

Not surprisingly, older Canadians (65+) held the lowest average debt, at $49,900, reflecting efforts of aging Canadians to reduce debt before entering retirement years.

Consumer debt by age group

When broken out by age cohorts, the generation that holds the highest average debt are Canadians closest to retirement:

• Ages 26 to 35: $18,398

• Ages 36 to 45: $28,863

• Ages 56 to 65: $30,000

• Over 65: $16,491

Empower your investments with Qtrade

Discover Qtrade's award-winning platform and take control of your financial future. With user-friendly tools, expert insights, and low fees, investing has never been easier.

Start Trading Today

Credit card debt: A growing reliance

Credit card usage has become a significant contributor to consumer debt, with balances steadily increasing. At the start of 2023, the average credit card balance held by a Canadian was $3,909 but by the end of 2023, the average credit card balance rose to $4,265. What's worse is that the number of Canadians who know carry a balance on a credit card has risen — with 46% of credit card holders carrying a balance for at least two consecutive months. Given the high cost of credit card debt, this increased dependence on this expensive form of debt shows a heightened level of financial stress among Canadians over the last few years.

Financial stress and borrowing behaviour

Many Canadians face financial challenges that exacerbate stress and limit their ability to plan for the future. However, key findings from a variety of surveys, including data from TransUnion and Equifax Canada, shows how financially strained many Canadians are over the last few years. For instance:

• 24% of Canadians cannot manage a $500 emergency without borrowing
• 36% worry about unstable income, with racialized Canadians reporting even higher levels of financial insecurity
• 28% borrowed money to cover daily expenses in the past year, rising to 40% for those under 35

Investment behaviour and financial literacy

Despite the challenges, many Canadians are taking steps toward financial stability through smarter money management, including building an investment portfolio. Unfortunately, disparities remain when it comes to the adoption of sound money principles and the use of saving and investing accounts.

In recent studies by credit agencies, it was found that 54% of Canadians identify as investors, however, those earning over $150,000 or university graduates were most-likely to identify as investors, meaning that Canadians who earned less or with different forms of education are missing out on the benefits of getting their moeny working for them.

It should come as no surprise, then, that only 21% of Canadians feel confident about meeting their financial goals. This highlights that four out of five Canadians would benefit from information and education when it comes to financial literacy.

Building financial confidence

Open conversations about money are essential for addressing financial challenges and reducing stress. Part of the dilemma is that talking about money tends to be stressful. Instead, many financial educators are attempting to change the discourse about money — an attempt to reframe smart money management as an ongoing, uncritical dialogue rather than an investigative analysis to uncover errors.

Part of this proactive approach is to help more Canadians learn the importance of using proactive tools to take control of their finances. This tools include:

• Creating a budget to track income and expenses.
• Prioritizing high-interest debt using the avalanche or snowball method.
• Consolidating debt to lower interest rates and simplify payments.
• Building an emergency fund to avoid reliance on credit.
• Seeking professional advice from financial advisors or credit counsellors.

By understanding these trends and adopting effective financial strategies, Canadians can take control of their finances and work toward a more secure future.

Sources

1. Advisor: Household income rises as debt falls in Q3: StatCan (Dec 12, 2024)

2. Equifax: Economic Pressures Could Impact Credit Performance of Consumers, Especially Young Adults (Aug 27, 2024)

3. TD: Canadian Household Balance Sheet - 2024 Q4 (Dec 12, 2024)