More Canadians are living closer to the edge as consumer debt loads continued to climb in the first three months of the year, a study shows.
Already at record levels, Canadians now owe just under $26,000 on average on their lines of credit, credit cards and auto loans, according to credit rating agency, TransUnion.
That’s an increase of 4.5 per cent, or another $1,000, over the same period last year.
The report comes a day after Bank of Canada Governor Mark Carney warned consumers to curb their spending, saying record low interest rates aren’t going to last forever.
The fear is that higher rates could push more consumers beyond their ability to repay their loans.
“There are going to be a lot of people in the market who are near the edge,” TransUnion vice-president Thomas Higgins said in an interview. “If there’s a drastic change in interest rates or unforeseen unemployment or some other shock from the U.S. or the European Union that throws off a province, or a region, or an industry, the people on the edge have no buffer.”
The news is not all bad.
Debt growth in Canada is slowing from the double-digit pace seen before the recession, Higgins said.
And total borrowing, including mortgages, typically the biggest household loan, is slowing, major Canadian banks said recently in their quarterly reports.
TransUnions’ figures don’t include mortgages, which typically make up two-thirds of a household’s debt.
Finance Minister Jim Flaherty said Tuesday he’s not concerned about a slowdown in consumer spending, as it suggests Canadians are heeding official warnings about spending beyond one’s means.
However, TransUnion said the fact that consumers’ debt load is still rising is a worry.
The Bank of Canada’s trend-setting overnight lending rate is just 1 per cent. But with inflation running at 3.3 per cent, above the central bank’s ideal range, Carney is under pressure to start raising lending rates to dampen demand.
Analysts predict a rate hike could come later this year barring unforeseen circumstances.
Total debt per consumer increased to $25,597 in the first three months of this year, Trans Union said.
Among types of loans, TransUnion said credit card debt, usually the most expensive to carry, barely budged from a year ago, falling $25 to an average of $3,539.
In a sign some borrowers may already be struggling, the national credit card delinquency rate rose 11 per cent. The rate measures the ratio of consumers who take 90 days or more to pay their bill.
The average line of credit, the most popular loans for their low cost and high flexibility, rose 5.9 per cent to $33,762 compared to last year. However, total line of credit debt declined for the first time in five quarters.
One noticeable shift was the decreased use of lines of credit, Higgins said. The category is the largest among consumer loans, making up 41 per cent of the total, and even more in Ontario, at 57 per cent.
But consumers are moving away from these highly flexible, low-cost products in favour of more rigid installment type loans, perhaps in a bid to force themselves to make regular payments, he said.
The average auto loan rose 12.4 per cent to $16,181 compared to a year ago. Total auto debt declined slightly to $45.8 billion.
The study found debt loads rose in all provinces, led by Quebec and Newfoundland and Labrador. British Columbians had the highest load at $36,649.
The average borrower debt on auto loans was also up in the quarter — by 12.4 per cent to $16,189 from $14,402 in the first quarter of 2010. The delinquency rate on auto loans fell slightly to 0.1 per cent from 0.13 per cent a year ago.
Lines of credit are the most popular form of consumer debt, excluding mortgages, accounting for more than 41 per cent of outstanding debt at the end of the first quarter. Debt on lines of credit stood at an average $33,981, up 5.9 per cent from $31,867 in the first quarter of 2010.
The report is based on anonymous credit files of all credit-active Canadians. http://www.moneyville.ca/article/1000720–canadian-debt-load-26-000-excluding-mortgages