British Columbians’ debt anxiety mounting amid inflation, interest rate hikes: surveys

Click to play video: 'New consumer debt study says credit card debt payday loans on the rise in B.C.'
New consumer debt study says credit card debt payday loans on the rise in B.C.
WATCH: It's hardly news that many British Columbians are struggling to stay afloat. A new study is giving us a clearer picture of British Columbians' debt load. As Grace Ke reports, some are now turning to credit cards and payday loans to cover the cost of living. – Jan 16, 2023

A pair of new studies reveals growing anxiety about debt among British Columbians, as they deal with the twin pressures of rising inflation and rising interest rates.

Accounting firm MNP Ltd. released its latest quarterly consumer debt index Monday, which found just half of British Columbian respondents (52 per cent) were confident they could meet their expenses this year without going further into debt — down seven per cent from last quarter.

The index, which is compiled from polling by Ipsos, also found three in five B.C. respondents were worried they wouldn’t be able to pay their debts due to rising interest rates.

Fifty-five per cent said they’d be in financial trouble if interest rates climbed much higher, while 65 per cent said they were already feeling the effects of rate hikes.

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“We’ve been expecting this for a long time, especially with interest rates rising. I think that was the final push that put consumers over the edge, and realizing and taking a closer look at their finances and seeing they were having some difficulty,” said Linda Paul, a senior vice-president and licensed insolvency trustee with MNP.

Two in five B.C. respondents said they were $200 or less away from insolvency, while 15 per cent said they were using their credit card to pay their bills, the report found.

“A lot of British Columbians are living paycheque to paycheque today, and I think that’s just a result of the cost of living going up so high,” Paul said.

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“While buying more expensive groceries, putting more expensive gas in their vehicles — everything has gone up in price, so they have even less money to work with each month to pay their debts.”

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Debt consultancy firm Sands and Associates released its own study Monday, drawn from a survey of more than 1,400 British Columbians who had recently declared bankruptcy or sought to restructure their debts with a consumer proposal.

President and licensed insolvency trustee Blair Mantin said the survey found a growing number of people aged 55 and older with mounting debt problems.

Just over a third of respondents to the the company’s survey said they were carrying between $25,000 and $50,000 of debt.

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A majority of those respondents — 59 per cent — said credit card debt was the main source of their financial trouble, while 11 per cent reported payday loans and six per cent said issues related to the COVID-19 pandemic.

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“Part of it is people have just continued to accumulate debt throughout their working life and haven’t been able to hit that debt-free state when you get into retirement, so it can be very difficult as your interest costs increase, but your pension stays the same, your income stays the same every year,” Mantin said.

“And then there can be the unexpected eventualities of life especially as you get older, your health might be a little bit more fragile, perhaps some people might lose a partner later in life — those things can be completely catastrophic from a financial point of view, not to mention an emotional point of view as well.”

Just over a quarter — 28 per cent — reported their debt was a result of overextend credit due to general financial mismanagement.

Meanwhile, the survey found many were racking up debt due to factors out of their control. Twenty per cent were using credit to cover essential costs of living, while 10 per cent went into debt over health or injury related issues, eight per cent due to marital or relationship breakdown and six per cent due to job problems.

Click to play video: 'Money Matters: Answers to the most common debt questions'
Money Matters: Answers to the most common debt questions

Mantin said many people were finding themselves with growing debt because they did not have an three to six months of financial cushion in an emergency fund to tide them over during catastrophic life events.

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Many others, he said, were spending 50 per cent or more of their income just to cover shelter costs.

“When you’re spending so much money just to keep the lights on, just to survive another day, that emergency fund just doesn’t get built up and when the actual emergency happens you’re left with nothing other than the ability to rely on credit,” he said.

“It can just become a vicious cycle.”

While the surveys painted a bleak picture of British Columbians debt concerns, both trustees said getting out of debt doesn’t need to be painful with the help of a licensed professional.

“The government has really, really good legislative remedies that can help you get out of debt,” Mantin said.

As many as 85 per cent of his clients were able to craft consumer proposals to restructure their debt without declaring bankruptcy, he said.

Paul said getting professional help can allow many people to become completely debt free in as few as five years with a consumer proposal, or even faster if they declare bankruptcy.

“If you take active steps to rebuild your credit,  you can rebuilt it in two years and get back to best rates and terms in the eyes of lenders,” she said.

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“A credit report shouldn’t be something that gets in the way of peace of mind, being debt free and just being able to sleep at night.”

MNP’s Consumer Debt Index update was built with data collected by Ipsos between Dec. 1 and Dec. 6, 2022, from a sample of 2,000 Canadians aged 18 and oler. The data was weighted according to census data. The poll is considered accurate within +/- 2.5 per cent, 19 times out of 20. 

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