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Consumer Debt Reaches All-Time High

This is news that is sure to make Finance Minister Jim Flaherty cringe – our consumer debt levels are the highest they’ve ever been.

The credit reporting firm TransUnion reported this week that the average Canadian consumer debt load has reached new heights of $27,485 during the last quarter of 2012. That’s an increase of six per cent over the average level seen during the same period in 2011. It’s the fastest rise we’ve seen since 2009 and, perhaps most troubling of all, is the fact that it’s the first time it’s extended past the $27,000 mark.

Thomas Higgins, TransUnion’s vice president said, “Increases in personal debt are not surprising during the final quarter of the year, as consumers tend to spend more during the holiday season.”

But, he also noted, that doesn’t mean that we have no reason to worry.

“The rise on a year-over-year basis should be more concerning, as Canadians’ debt load increased by more than $1,500,” he said.

Different levels of the debt increase could be seen in different provinces, as seen in the chart below.

While the provinces to tack on the most debt were Alberta, Quebec, and Prince Edward Island, British Columbia actually saw a small drop in their amount of consumer debt. That’s good, considering that B.C. currently has the highest level of consumer debt.

As you can also see from the chart above, car loans were the type that soared above all the rest, with a large increase being seen during the last quarter. Andy Fisher, a partner at A Farber and Partners, a bankruptcy and insolvency firm, said that there’s reason for this, too.

“That’s a trend we’re seeing as people held off buying new cars during the recession, but now they’re starting to replace them and that’s taking financing,” he says. But, he says, people also need to be very careful about the amount of debt they’re taking on.

“With debt loads increasing, any sort of hiccup can be enough to put you over the edge in a situation like that, but people aren’t seeking help early enough to give them options,” he added.

But, there is some good news. While we may be taking on more consumer debt than ever before, we’re also paying it down more than ever before. Delinquencies are down, especially in installment loans, which have a delinquency rate right now of only 1.18 per cent. And that’s the highest delinquency rate of any other form of consumer debt. Consumer debt such as lines of credit and and credit cards have a delinquency rate of only 0.3 per cent.

Mr. Higgins said, “While Canadian debt levels continue their upward track, delinquency levels remain low, and in some cases, are drifting even lower. It’s an especially positive sign to see lines of credit, which make up the majority of personal debt when excluding mortgages, experience yearly declines in delinquencies.”

Fisher also chimed in saying that the rise in consumer debt has risen because tighter mortgage rules have infringed on people’s ability to borrow against their home, and increase their household debt.

“People were using their homes like ATMs,” says Fisher about the time before mortgage rules went into effect. “It’s not as easy to do that anymore.”

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