Canadians taking steps to avoid credit card debt, despite economic pressure

Canadians taking steps to avoid credit card debt, despite economic pressure
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Taking on more credit card debt has not been part of the COVID-19 pandemic plan for many Canadians, data from TransUnion Canada on Tuesday suggests.

The credit reporting agency said in a quarterly report that credit card balances fell 12.3 per cent in the second quarter compared with the same period a year ago.

Reduced opportunities for spending during the lockdown may have contributed to the drop, said TransUnion’s Matt Fabian, but he also noted that people are dipping into savings or retirement funds rather than relying on credit cards.

“Recent feedback from our survey seems like the folks that say they’re still experiencing a lot of financial hardship continues to drop. And there’s a lot more certainty in terms of the response, in terms of what they’re going to do. Consumers have fortified themselves,” said Fabian.

TransUnion uses the credit bureaus’ national consumer credit database as source material for its quarterly report.

Applications for new credit also grew at a slower-than-usual pace amid reduced access to branches during the lockdown, uncertainty around employment and a pullback on new offers from lenders.

The report did note that credit balances for Millennials and Gen Z consumers grew 0.8 per cent and 5.9 per cent, respectively, as those consumers have less buffer in the form of savings, investments or retirement funds. Overall instalment loan debt also rose by 3.9 per cent in the second quarter to $175.4 billion, up from $168.8 billion a year ago.

Mortgage debt is on the rise, TransUnion said, with new mortgages, renewals and refinances up 29 per cent from a year ago and a 5.3 per cent annual increase in the total volume of mortgage debt.

“The spring, that’s usually the big mortgage season or the big home buying season. With people not being able to go out, and constraints around travelling and visiting homes and looking at new homes, once some of those lock downs were lifted, we’ve seen sort of a real surge,” Fabian said.

“Certainly for some consumers that have existing mortgages, deferrals were an option, and a lot of consumers opted to take it … certainly for a lot of people, a mortgage might be one of the biggest monthly or biweekly expenses that they’d have.”

Despite a 4.3 per cent rise in total outstanding debt in Canada, which stood at $1.9 trillion in the second quarter, Fabian says delinquencies have risen less than expected, as about 2.6 million Canadians, or 9.2 per cent of credit consumers, have at least one active deferral.

Delinquencies also were on the rise for personal loans, which TransUnion noted are “partly fuelled by alternative lenders who have been slightly more aggressive in issuing personal loans to below prime consumers.”

“We have seen delinquency rates go up a little bit, but a lot less than we had expected… and I think part of that is the deferral and forbearance processes that are in place with the lenders as well as the support from the government,” said Fabian.

“Delinquency tends to be a long-tail thing where it takes a while. People have exhaust all their options before they will start to continuously skip and miss payments. As deferrals come off and the government subsidization ends, we expect to see some delinquency spike.”

This report by The Canadian Press was first published Aug. 18, 2020.

Anita Balakrishnan, The Canadian Press

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