Canadians are facing a worrying financial picture.
Keeping up with the rising cost of living has many Canadians making changes. These changes can be drastic and life-altering, including moving for more affordable housing, cutting expenses and increasing work hours. The Bank of Canada (BoC) rate hikes designed to curb these rising costs seem to add pressure to those with variable-rate loans and mortgages. Unfortunately, many Canadians use their credit cards to help cover their costs.
According to a new report by Equifax, Canadian consumer debt has risen to $2.32 trillion, with an average debt load of approximately $21,000—excluding mortgages. These numbers represent an increase of 8.2% over last year and a 6.4% increase between the first and second quarters of 2022. It is important to note that Canadians are using credit cards more, as there was a 6.4% increase in credit balances from the first quarter to the second.
59% of Canadians are feeling the effects of these rate increases. More people are likely to feel the pinch, with about two million Canadians renewing their mortgages within the next 12 months.
Credit card spending is reaching historically high levels. Increased credit card use can lead to a high debt load if not monitored. An unbalanced credit utilization ratio (the amount of debt you carry compared to the amount of credit you have) or missed payments will harm your credit score, which could affect your ability to take out a loan or get a mortgage.
If you feel isolated with your debt, you need to know that you are not alone and that help is available.
Here are some effective strategies for reducing your credit card debt:
Create a budget.
A budget that includes a plan for debt repayment. Make sure the numbers fit and are reasonable with your current income and monthly commitments.
Negotiate.
Negotiate interest rates or the terms of your debt with your creditors.
Switch cards.
If you are carrying a high debt load on a credit card with a high-interest rate, you can relieve your debt load substantially by switching to a card with a lower interest rate. Some cards offer balance transfer promotions of low-interest or no-interest for a limited time, which could buy you time.
Use the equity in your home.
This may not be an option for everyone, but it is worth considering if available. High debt loads harm your credit score and can affect your ability to get a mortgage. Read about debt load and debt ratios here. Credit card interest rates are considerably higher than mortgage interest rates. This may be a more viable option to get your finances back on track.
If you are among the millions of Canadians carrying debt, you are not alone. Debt can be an enormous strain on your financial and emotional well-being. Becoming informed about the resources available can positively affect your life and credit score too!
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