British Columbians’ anxiety about their debt situation is building, amid rising interest rates, persistent inflation, and heightened affordability concerns.
The latest quarterly MNP Consumer Debt Index finds significantly fewer British Columbians are confident in their ability to cover all of their living/family expenses in the next year without going further into debt (52%), plunging a record seven points from the previous quarter. Nearly half of British Columbians say they regret the amount of debt they’ve taken on in life (46%), increasing five points from last quarter. Additionally, more British Columbians this quarter say they are concerned about their current level of debt (43%, +3pts).
The MNP Consumer Debt Index is conducted quarterly by Ipsos to track Canadians’ attitudes about their debt situation and their ability to meet their monthly payment obligations. It has taken a drastic plunge to 77 points, down 15 points from the last quarter and marking an all-time low since the Index was created over five years ago.
“The shift we are seeing in British Columbians’ attitudes towards their personal debt is a reflection of the successive interest rate hikes and persistent inflation we saw in 2022,” said Linda Paul, a Licensed Insolvency Trustee with MNP LTD. “Many are being hit with a double whammy. Those who are financially fragile and overleveraged are facing rapidly rising costs of borrowing, meanwhile, inflation is eating away at their household budget.”
After last year’s rapidly rising interest rates, British Columbians are feeling significantly worse about their ability to absorb interest rate increases. Two in three British Columbians (65%) say they are already feeling the effects of interest rate increases, making a five-point jump since last quarter. Spiking 11 points from last quarter, significantly more now say their ability to absorb an interest rate increase of one percentage point has worsened (24%). About three in five say that as interest rates rise they are more concerned about their ability to pay their debts (62%, +11pts), and if interest rates go up much more, they will be in financial trouble (55%, +7pts).
Rising costs are being felt by a growing proportion of British Columbians. Over half report feeding themselves and their family (58%, +7pts), putting money aside for savings (57%, +4pts) and transportation (54%, +8pts) are less affordable. About half say that clothing or other household necessities (51%, +8pts) and housing (48%, +8pts) are becoming less affordable.
“Individuals who are spending nearly all their monthly income have very little wiggle room in their budget to accommodate any kind of increase in debt carrying costs and expenses. British Columbians who are in this position often resort to taking on more debt as they struggle to keep up their standard of living,” said Paul.
More British Columbians are likely already resorting to taking on more debt to make ends meet. Compared to December 2021, significantly more say they will use their credit card to pay their bills (15%), jumping six points, the largest increase amongst the provinces. More British Columbians also say they have paid only the minimum balance on their credit card (24%, +2pts), borrowed money they can’t afford to pay back quickly (16%, +4pts), or paid the minimum balance on their line of credit (14%, +2pts). One in five say they will use their savings to pay their bills (20%, -1pt), while one in 10 say they will borrow from friends or family (14%, +7pts). A third say they plan on reducing their consumer expenses to make ends meet (36%), increasing four points since last quarter.
“Taking on more debt can have lasting financial impacts and push some into a debt spiral that is difficult to break free from, but unfortunately more individuals are being forced to make tough financial decisions to get by. Financial struggles can also have a significant impact on mental health, as the burden of debt can often trigger stress and anxiety,” said Paul.
Increasing two points since last quarter, two in five (44%) British Columbians report that they are $200 away or less from not being able to meet all of their financial obligations. This includes three in ten (31%) who say they already don’t make enough to cover their bills and debt obligations, jumping eight points, the largest increase amongst the provinces.
“British Columbians should be on the lookout for any financial red flags as the holiday bills arrive this month. They may point to the need for professional debt advice,” she said. “If you find you are using other forms of credit to pay bills or are unable to cover bills or anticipate missed payments, the best course of action is to seek the guidance of a debt professional like a Licensed Insolvency Trustee before those financial problems escalate.”
Debt-relief options can include striking a deal with creditors through an informal debt settlement, consolidating all debts into one monthly payment, making a debt repayment plan through a consumer proposal, or declaring bankruptcy.
Paul explains that individuals often miss the initial warning signs or feel shameful about seeking help, causing the debt to snowball, and in some cases leaving the individual with fewer options.
“Each person’s debt situation is entirely unique, which is why a good starting point is a free, confidential review of your finances by a Licensed Insolvency Trustee who will walk you through all of the debt relief options available,” said Paul.