Canadians Paid Off Record Amount of Non-Mortgage Debt During First Year of COVID
While recent figures revealed that Canadian household mortgage debt has risen by a record amount, this doesn’t necessarily signify a doom and gloom situation on the overall debt front.
In fact, Canadians actually paid off a record amount of non-mortgage debt in the first year of the pandemic. What’s more, those with the lowest credit scores led the way.
According to data released yesterday from Statistics Canada, Canadians are paying down their non-mortgage depts at the fastest pace in 30 years. New figures from the data agency reveal that Canadian credit card debt declined by 18% in the year from February 2020 up until the end of January 2021.
The findings are somewhat surprising, if not notable, as Canadians’ credit card balances have been growing steadily for the past two decades, increasing at an average rate of more than 20% per year.
Canadians owed a total of $13.2 billion on their credit cards at the turn of the millennium. By February 2020, this figure had grown to $90.6 billion. By January 2021, that figure was down to $74 billion. The $16 billion drop marks the biggest decline in credit card balances since at least 1999. Interestingly, though credit card balances declined across all income levels, the decline in balances was most pronounced for those with lower credit scores.
The total balance owing for those with credit scores below 640 dropped from almost $15 billion in the fourth quarter in 2019 to under $10 billion in the first quarter of 2021. Meanwhile, for those with a credit score above 800, the balance went from about $16 billion to $14 billion.
But it’s not just credit card debt that dropped among Canadians. A decline in other forms of debt resulted in the first annual drop in overall non-mortgage debt in more than three decades.
“The largest reductions in debt loads were among those with the lowest credit ratings, suggesting that Canadians most vulnerable to financial hardships were able to use savings prudently during the pandemic,” reads the report.
Those with the lowest scores saw an overall drop in balances of more than 35%, while those with credit scores between 641 and 800 saw drops of between 15 and 20%. Meanwhile, those in the 800 level had declines about 13%.
Tellingly, household consumption dipped notably in the second quarter of last year compared to the year prior, dropping 14.7%. This marks the largest year over year decline since Statistics Canada started tracking it in 1961(!).
So, with dining out, travel, concerts, and other experiences halted due to the pandemic, it appears Canadians took the occasion to use their so-called disposable income to pay off their debts.
Furthermore, many of those in the lowest pay bracket — those making less than $500 a week — actually brought in equal or more cash during the pandemic, thanks to initiatives like the Canada Emergency Response Benefit (CERB), which stays in effect until October.
So, while the news on the mortgage front isn’t exactly uplifting, it’s at least reassuring to know that dents in debts are being made in other areas.