credit and debt
03. credit & debt Canadians’ debt payments continue to grow, but is there a silver lining?
DWINDLING INTEREST IN CANADIAN DEBT PAYMENTS
It’s no secret that in aggregate, Canadians are acquiring evermore debt through a variety of conduits (mortgages, lines of credit, credit cards, and car loans, to name the biggies). This has led to annual debt payments reaching record levels in Canada in Q1 2019, at just under $202 billion. This is up 8% from one year earlier, amd 51% compared to a decade ago—certainly warranting an eyebrow-raise, at the very least. However, we'd all benefit from showing more interest in the topics of debt and debt payments. First, in a country that is growing in population, it is reasonable—indeed, expected—that aggregate debt and debt payments would rise over time. In Canada, the national population expanded by 1.4% over the most recent year, and by 12% over the most recent decade. These rates are well
below the growth in debt payments, but they do help explain some of the increase. Second, the proportion of debt payments going to the interest component of the amount owing (versus loan principal) has, generally-speaking, been declining over the past 30 years: from a high of 91% of payments going to interest in Q2 1991, the share has fallen to 50% in Q1 2019. This, of course, has been on the back of declining interest rates, with the benefit being that with each debt payment Canadians have been drawing down outstanding loan balances increasingly faster for a given amount of debt. Rate increases in the past couple of years have pushed the proportion of debt payments going to interest upwards from a low of 46% in Q3 2016, but with rates on hold or falling, expect this trend to level out for at least the next year. This will benefit Canadian households.
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