More indebted Canadians see trouble ahead as interest-rate tide rises

Canadians' attitudes on debt have hit an all-time low, yet almost half believe they'll need to borrow more

More indebted Canadians see trouble ahead as interest-rate tide rises

Just a week after an RBC analysis noted “cracks” in consumer credit, new research from Canada’s largest insolvency firm suggests worsening fallout from rising interest rates.

According to the latest release of the MNP Consumer Debt Index, 43% of Canadians — up 5% from the previous survey in December — are already feeling the effects of higher interest rates. Over the past six months, there’s also been a 5% increase in concerns that rising rates could affect people’s ability to repay their debts (cited by 51% of Canadians in the latest poll) and push them toward bankruptcy (cited by 33%).

But in spite of how close they are to the edge — 46% said they were $200 or less away from financial insolvency after paying monthly bills and debt obligations — 47% of those polled did not believe they could shoulder all their living and family expenses in the next 12 months without taking on more debt.

“Households currently showing signs of financial difficulty and living on credit are about to fall into a debt trap if interest rates continue to rise or if they face an unexpected expense,” said MNP LTD President Grant Bazian.

Overall, less than a third of Canadians said they were confident they could withstand the financial impact of a life-changing event or unexpected expense. That includes:

  • Unforeseen auto repairs or purchases (28%, down 3 points from the previous survey);
  • A three-month absence from work due to illness (28%, down 1%);
  • Loss of employment (26%, down 1%);
  • A divorce or separation (32%, up 1%); and
  • The death of an immediate family member (26%, unchanged)

“I cannot stress this enough: many Canadians need to be far more proactive about managing debt instead of maintaining the status quo,” Balzian said.

Looking at the results by age group, fears of a decreased ability to repay debt due to a rate hike were more prevalent among millennials aged 18-34 (61%) compared to Gen Xers aged 35-54 (53%) and Baby Boomers aged 55 or older (42%). Concerns on possible bankruptcy due to a rate hike also tended to decrease with age (45% of millennials, 35% of Gen Xers, 23% of Baby Boomers).

Consistent with another study by RBC, Alberta also led all other provinces when it came to debt concerns. Albertans were most likely to say that they were already feeling the effects of rate hikes (55%), that they’d be in financial trouble if rates were to rise further (52%), that they’d be pushed toward bankruptcy as rates rise (43%), and rate their personal debt situation as “terrible” (20%).