According to Bank of Canada Governor Tiff Macklem, more and more Canadian renters are depending on credit card debt to survive, and many are struggling to make payments.
In his speech at the Institute of International Finance (IIF) and The Canadian Bankers Association (CBA) Canada Forum 2024 on Tuesday, Macklem highlighted his growing concern over this alarming trend.
While mortgage owners might be struggling, Macklem spoke to a “notable increase in financial stress among borrowers without a mortgage, mainly renters.”
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Before the pandemic, Canadian renters were in better financial shape — the number of missed payments among borrowers had reached historic lows. But that has since changed.
“We’re now seeing a larger share of these borrowers lagging behind on credit card and auto loan payments,” said Macklem.
“Over the past year, the share of borrowers without a mortgage who carry a credit card balance of at least 90% of their credit limit has continued to climb. And this share is now above typical historical levels. This is concerning.”
The annual Financial Stability Report (FSR) released in May showed “a modest increase in levels of financial stress” among Canadian mortgage holders compared to renters. Since the report, more homeowners have fallen behind on payments, but the numbers are still below those before the pandemic.
“Uncertainty feels like the new reality,” stated Macklem.
Climbing out of debt
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Natasha Macmillan, director of everyday banking at mortgage broker Ratehub.ca, says there are ways renters can manage rising credit card debt.
Macmillan suggests starting with monitoring your daily expenses.
“Review your monthly expenses to find out how much you’re spending monthly, then consider trimming expenses on non-essential items,” she stated.
Once you know how much you spend, create a realistic budget that “reflects your income and essential expenses.”
“Allocate the remainder to non-essentials and hold yourself responsible for staying within your limits,” advised Macmillan.
Once you have those under control, it’s time to freeze your credit card. You can do so by asking your credit card issuer to lock your card as you continue to make payments. Then, consider transferring your balance to a new card, opting for credit cards with a promotional interest rate on balance transfers.
“For a small fee, you can use such an offer to avoid paying interest for several months while you work on paying down your balance,” said Macmillan.
And finally, switch to a low-interest credit card.
“If you carry a balance, consider getting a low-interest credit card that can cut your interest rate by more than half,” she stated.