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There's a common theme among Canadians overwhelmed by debt

2/6/2024 | Posted in Financial Health by Paul DeAdder | Back to Main Blog Page

Debt Payment

What does a 'typical' insolvent Canadian look like?

Further analysis of the latest Canadian insolvency stats reveal some revealing elements that typically connect those whose finances have got too much for them.

Following the spike in both consumer and business insolvency filings in 2023, Hoyes, Michalos & Associates Inc. have looked into what is driving the overwhelming debts that leave people with little option but filing for insolvency.

Credit cards play a key role with 91% of insolvent debtors in 2023 having outstanding credit card balances, averaging $17,816. This sum was up almost 13% year-over-year however for those aged 18-29 the increase was 34.5%.

"Credit card debt balances are increasing as households use credit to make ends meet in a rising cost environment and as indebted homeowners use credit cards to keep up with mortgage payments," says Doug Hoyes, Licensed Insolvency Trustee.

Insolvent debtors owed an average of $54,084 in unsecured debt in 2023, up almost 10% from 2022 and the highest since the firm’s Joe Debtor report began in 2011.

The report also found that higher-income and older debtors were more common last year than in the previous year with those aged 40 and older accounting for 53.4% of all insolvency filings last year compared to 51% in 2022.

The average age of insolvent debtors was 42.8 years, although those in their thirties made up almost one third of all insolvencies though, a significant share for only a ten year age range.

Men accounted for more insolvencies than women and owed an average of 20% more. However, women are more likely to be divorced or separated, to have dependents, be single parents, or have student debt.

Homeowners’ debts

Homeowners were struggling more in 2023 as interest rates pushed up mortgages for those on variable rates or renewing, while inflation squeezed household budgets.

While only making up 4% of insolvencies, this doubled last year and pushed this cohort’s unsecured debts up to an average of $77,780.

"Vulnerable households often turn to credit cards and lines of credit to keep up with mortgage payments until their credit options are exhausted," says Ted Michalos, Licensed Insolvency Trustee. "The average insolvent homeowner has just 7% home equity, and that home equity amounts to less than half their unsecured debt obligations.”

The continuing cost-of-living challenges mean the level of insolvencies is likely to trend higher.

"As long as the cost of living and interest rates remain high, we expect consumer insolvencies will continue to rise in 2024 at the current pace of 20-30%," concluded Hoyes.

Source: Wealth Professional

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