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Report suggests the pandemic forced some Canadians to take on more debt
Most Canadians are accustomed to debt — from taking on a mortgage to buy a home to using credit cards for everyday purchases.
But familiarity and comfort with debt have been tested during the pandemic, a new report from CIBC suggests.
“Debt is a part of most Canadians’ lives, with the study finding 74 per cent have some debt obligations,” says Carissa Lucreziano, vice-president of financial and investment advice at CIBC.
“Specific to the pandemic, however, there have been many instances where consumers have taken on more debt.”
A survey by CIBC found that about 28 per cent of the participants added to their debt load in the past year. Further to that, 31 per cent increased their debt to pay for daily expenses and more than 20 per cent had to do so because they lost their job or had a lower income.
The pandemic also spurred Canadians to make big changes, including more than one in 10 of those surveyed taking on more debt to buy a home.
“Yet many Canadians have faced more unfortunate circumstances, like taking on more debt for day-to-day expenses,” Ms. Lucreziano says.
Reasons aside, all Canadians should establish “healthy habits” around debt, Ms. Lucreziano advises. That includes following a budget and borrowing only as much as you can pay back.
Other good practices include making more than minimum monthly payments on debt, understanding interest costs and other fees, as well as carefully reviewing statements to track spending.
The poll findings reveal some of the consequences of not having good habits, including the fact 11 per cent said they used a payday lender.
Ms. Lucreziano says relying on these high-interest loans is often a warning sign. “Other red flags are you’re only making minimum payments on credit cards, you’ve maxed out your credit cards, or you have missed payments or made late payments.”
Feeling overwhelmed by monthly payments — from car loans to mortgage costs to multiple credit cards — could also indicate your debt load has become unmanageable.
Help is available from financial institutions such as your local bank, says Ms. Lucreziano, who has advised many clients about debt and managed advisors that offer debt assistance. “It’s so important to seek support from an advisor,” she adds.
But many people are reluctant to get assistance, the survey found, with nearly 30 per cent too ashamed to ask for it.
“So, there are a lot of people likely not getting help,” Ms. Lucreziano says.
Letting the problem fester often makes it worse, especially if interest rates rise, she explains. Advisors can help tackle the problem by helping you develop a budget that reduces costs.
Advisors may also be able to provide access to debt consolidation loans, which merge high-interest debts, such as credit cards, into one loan with a manageable fixed payment at a lower interest rate.
“They can also help you understand your credit score,” Ms. Lucreziano says, adding CIBC clients can check their score using the bank’s mobile app.
A credit score is important when seeking future loans, such as a mortgage. “If your repayment history is spotty, that lowers your score, which in turn could affect your ability to be approved,” she explains.
Making consistent debt payments gradually improves your score, leading to more favourable borrowing terms, Ms. Lucreziano says.
Debt management strategies do more than improve credit scores - they heighten your control over your finances.
By implementing a budget and tracking expenses you can cut your spending. Then those savings can go toward debt repayment and other goals.
Advisors are adept at budgeting tips, such as the 50/20/30 rule. This involves allocating 50 per cent of after-tax income to essential expenses (including debt), 20 per cent to savings, and 30 per cent for discretionary needs.
With a better handle on their finances, individuals also realize other benefits. “You can really see a change in clients’ body language and mood,” Ms. Lucreziano says. “It’s really about peace of mind and feeling good about working toward financial goals that may have previously felt out of reach.”
Despite its many challenges, the pandemic has had a silver lining for some Canadians, the CIBC study found.
Almost four in 10 respondents said they paid down debt faster due to reduced spending on transport, vacations and other expenses.
What’s more, a majority are now re-evaluating their spending habits with almost half encouraged to get their “financial house in order.”
For Ms. Lucreziano, these are heartening signs.
“Many are having this ‘Aha!’ moment and are now looking for solutions. That’s where financial advice can really help.”
For more information on debt management, visit CIBC’s Get Debt Help website.
From May 3rd to May 4th 2021 an online survey of 1,518 randomly selected Canadian adults who are Maru Voice Canada panelists was executed by Maru/Blue. For comparison purposes, a probability sample of this size has an estimated margin of error (which measures sampling variability) of +/- 2.5%, 19 times out of 20. The results have been weighted by education, age, gender and region (and in Quebec, language) to match the population, according to Census data. This is to ensure the sample is representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
Advertising feature produced by Globe Content Studio with CIBC. The Globe’s editorial department was not involved.