People are going out again as pandemic restrictions loosen up. Canadians are dining in fancy restaurants, taking luxury vacations, and making large purchases after feeling pent up during COVID. But guess what all the spending hype, mixed with soaring inflation and increased costs of living means for Canadians? Debt — and lots of it. You probably feel it when you look at your credit card statement or go out for dinner. Financial woes are at an all-time high, whether from mortgages, credit cards, or student loans. Curious about how your debt compares to other Canadians? You might wonder: What is the average debt in Canada?
Table of contents
- The Current State of Canadian Debt
- Statistics About Canadian Debt
- What is good vs. bad debt?
- What is the average consumer debt in Canada?
- What is the average student loan debt in Canada?
- What is the average credit card debt in Canada?
- What is the average mortgage debt in Canada?
- Tips to Pay Off Debt Quickly
- What to do when you have a lot of debt?
In this article, we’ll cover everything you need to know about the average debt in Canada. We’ll also cover different types of debt, along with helpful advice to pay it off quickly.
The Current State of Canadian Debt
Canadian household income steadily increased in late 2022. But so did consumer debt.
Disposable income, also known as available spending money, increased by 0.8%. This isn’t a huge increase, but the slight jump was likely due to the economy opening up again and people getting their jobs back. All of a sudden, you could finally take that long-awaited trip to Cuba. And maybe you’d spend a little more to celebrate. But as people’s spending rose, so did their debt — by 1.2%. Now, Canadians carry $1.83 in debt for every dollar they have.
In other words? Mortgages, credit cards, and other loans overpower average income by nearly double.
But what’s most troubling is the massive increase in unsecured debt. One Equifax analytics executive told Global News to blame “pent-up spending” and high living costs for the increase in consumer debt, especially credit card debt.
Look at it this way: 2022’s third quarter saw an average $2,447 balance on Canadians’ credit cards — that’s 21.8% higher than it was in 2019.
Let’s explore some more specifics around Canadian debt and how it affects us.
Related Reading: What is a Consumer Proposal?
Match to your perfect advisor now.
Getting started is easy, fast and free.
Statistics About Canadian Debt
Almost 75% of Canadians live with debt. Unfortunately, more than 30% experience negative effects in daily life from owing large amounts of debt.
We’re talking about financial stress, which causes worry, anxiety, depression, general mental health problems and even physical health issues. That’s why Canadians have two main goals in 2023. One? Repay their debts. Two? Keep up with bills.
One out of every 6 Canadians spends more than what they earn. But that’s often due to unaffordability and inflation. Additionally, 1 in 4 use personal loans just to afford groceries and everyday expenses! Since these Stats Canada findings are from 2019 before this year’s sky-high inflation rates, we’re guessing that 1 in 4 might be even higher now.
So, what kinds of debts plague Canadians? About 40% have a $200,000 (median) mortgage as of 2019 — the most common and substantial source of debt for most. Remember when Canadians took on mortgages for a whopping 410,000 properties in 2021? Then there’s the home equity line of credit that over 88% of homeowners also have. Still, these are relatively “good” debts since holding onto the asset brings you appreciation (more on that later).
Next up on the debt roster? Credit card debt and car loans — the “bad” debts — about 29% of Canadians have both. Another 20% of Canadians have lines of credit, and 10% have student loans. Additionally, 5% of Canadian citizens have debt on mortgages taken out on vacation homes and rentals, and 3% have personal loan debts, although these two are rare.
Related Reading: The Best Financial Planning and Retirement Calculators
How much debt does the average person have?
Today, the average person is $21,183 in debt, excluding mortgages.
What percentage of Canadians have debt?
Roughly two thirds of Canadian families are carrying debt. Approximately 30.2% of Canadian families are completely debt-free.
What is considered a lot of debt in Canada?
Debt is sometimes inevitable. Small business owners acquire loans to buy crucial equipment, space, and other assets to launch their business or take it to the next level. That might look like a $400,000 investment — a lot of debt for the average middle-class family, but perhaps not for a seasoned, successful entrepreneur.
Furthermore, individuals will take on debt to achieve their goals, such as buying a house, going to school, or completing a home renovation. The bottom line is debt isn’t bad, but taking on too much or using debt for inappropriate purposes, like paying day to day expenses, can strain your finances.
Determining if you have too much debt
Here are a few ways to tell if you have too much debt:
- Interest: If your interest rates are comparatively low, you’ll feel better paying down more principal than interest each month. But paying sky-high interest rates on credit cards is an unavoidable 20%. Keep in mind that your credit score needs to be strong to achieve favorable interest rates from lenders.
- Credit score: Missed one too many credit card payments? Late payments might mean you have too much debt, as it begins to lower your credit score.
- Stress: If you feel anxious every time you sign into your online banking, your debt might be overwhelmingly high.
- Debt-to-income ratio (DTI): This percentage-based figure compares your total debt against your income. It’s kind of like the $400,000 debt comparison we made for the successful business owner versus a low-income family. DTI helps you visualize debt severity for every income. Experts advise a DTI of 36% or less is ideal. For example, if your monthly income is $10,000, then your mortgage, auto loan, student loan, and credit card payments should come up to $3,600 or less. On the other hand, anything over 43% is too high.
This formula, however, isn’t perfect. Each household has its own set of additional expenses in the form of groceries, utilities, retirement savings, and sometimes even medical bills. Make sure to account for these nuances while analyzing your DTI.
Related Reading: Canada Debt: How much is too much?
What is good vs. bad debt?
Remember when we mentioned mortgages as good debt and credit card debt as bad debts? What’s the difference? Below is a summary, but keep in mind good vs bad debt depends on individual circumstances. A good investment to one person might be a bad investment to another person.
Good debt is money you owe that can help you build wealth. The mortgage is the most common example. It might bring you hundreds of thousands of dollars into debt, but you have a tangible asset that builds equity and the potential for rental income.
Another example is a student loan, which helps you acquire marketable knowledge and skills to build your career.
Still, some variables can affect good debt. A mortgage can turn into bad debt fast if you fail to make regular payments. And, in today’s day and age, a high-paying job after a college degree isn’t guaranteed.
Bad debt isn’t secured by an asset, nor does it bring any return on investment. Credit cards are a common example. Their interest rates reach as high as 20%, and they rarely generate any wealth or profits. Personal loans also have high-interest rates, and using them to pay for vacations or other things that don’t add value to your wealth falls under bad debt.
Car loans are a tricky middle ground. A car’s value depreciates over time. But still, a vehicle takes you to work every day and helps you generate income.
Related Reading: Financial Planning Tips for Students and Young Professionals
What is the average consumer debt in Canada?
What is the average debt in Canada? According to Equifax, the overall consumer debt in Canada shot up to $2.32 trillion in 2022. This pretty much covers all debts outside of mortgage debt. Today’s average Canadian consumer debt at the individual level is $21,183. These statistics are concerning as they showcase an 8.2% increase compared to 2021 and a 6.4% surge from the first six months of 2022.
What gives? Inflation is a big contributor. Canadians are left with few options other than to take on more loans to deal with catapulting prices. Below are more detailed stats:
|Credit Card Debt
|$2,447 each month
What is the average student loan debt in Canada?
The average student loan debt in Canada is $26,075.
Related Reading: How to Make Money in Canada as a Student
What is the average credit card debt in Canada?
Canadians are putting their credit cards in overdrive. In the latter part of 2022, the median monthly spend on credit cards by Canadians reached $2,447, denoting a 17.3% upward spend from 2021 and a 21.8% from 2019.
How much credit card debt is normal?
As mentioned above, the average credit card debt in Canada is about $2,500. If you’re around this number, that would be considered “normal”. But if you’re below, then you’re doing well with your credit card debt. And if you’re above, it’s advisable that you try to pay it down and get the figure closer to the average or lower.
With all that said, what is considered “normal” depends on your specific financial goals and circumstances. For instance, someone with a higher than average salary may be able to afford to carry more credit card debt. Or, an individual who wants to retire early might maintain a lower credit card balance to achieve their goal faster. Be sure to consider these factors when assessing your credit card debt!
What is the average mortgage debt in Canada?
The average mortgage debt for Canadians in Q3 2022 was $363,654. But, property prices vary widely across the country. That’s why it’s more useful to analyze mortgage debt by province. Check it out below:
|Average Mortgage Debt
|Prince Edward Island
Tips to Pay Off Debt Quickly
With more knowledge on what is the average debt in Canada, you might feel motivated to pay off your debts. It’s natural to feel overwhelmed by large amounts of debt. But you can overcome it — here’s how:
Related Reading: Consumer Proposal vs Bankruptcy: What’s the difference?
1. Follow the 50/30/20 Rule
A popular guideline for personal budgeting is the 50/30/20 rule. It splits income into three sections:
- 50% towards vital needs like rent, utilities, groceries, and medical bills
- 30% for wants like shopping, nights out, or vacations
- 20% for ticking off financial goals like debt repayment, emergency funds, and retirement savings
You can tweak percentages of each category, depending on your financial situation.
2. Use the Snowball or Avalanche Method
The snowball method advises you first and foremost to pay off small loans as soon as you can. After one small debt is repaid, the money originally put into the first debt goes into repaying the second smallest debt, and so forth.
While this method won’t help you pay off all your debt immediately, it’s still a great motivation strategy. It creates a “snowball” effect as you pay off each debt, allowing you to tackle larger debts.
A direct opposite of the snowball method is the Avalanche method. Individuals using this method first make minimum payments on all their debts. After, they use any extra money towards the repayment of loans with the highest interest rates. Once they pay off their highest debt they move on to the next highest debt.
While the avalanche method helps get rid of the most money-draining debt, it isn’t as motivating as the snowball method, where progress is noticeable from day one.
3. Consult a Financial Advisor
Professionals with extensive experience in the financial field could provide invaluable insight into your debt crisis. Consult a credit counselor or financial advisor for a deep look into your financial picture and a step-by-step plan to meet your financial goals. While this may feel like an additional expense at first, in the long run, you’ll save a lot of time, headache, and of course, money.
Related Reading: Best Student Discount Programs
What to do when you have a lot of debt?
Now that you know what is the average debt in Canada, you might feel overwhelmed by your own circumstances. Having a lot of debt may feel like the end of the world. But with careful planning, conscious spending and budgeting, and a solid investment strategy, you can overcome it.
Meanwhile, cut down on expenses, sell things you don’t need, and ensure that you don’t take on additional loans. Try using financial tools like Mint and YNAB to accurately track your spending. Our best advice? Find a financial advisor to help you become debt free.
Read More: Does Your Debt Die with you in Canada?