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Debt is the new normal in Canada.

In the first 3 months of 2023, Canadians owed $588 billion in consumer credit. That means each of Canada’s 40,000,000 people owes $14,705.50, and that has nothing to do with having a mortgage.

That’s a lot of cash to owe to creditors, especially when you’re talking about unsecured debt. Unsecured debt usually has a higher interest rate because your creditors cannot seize an asset if you default.

Furthermore, people look to credit cards when the cost of living outpaces their income. If you are a newcomer to Canada, a credit card is one of the first things you get in order to start building your Canadian credit score and credit history.

So, what is the real reason why debt in Canada is so high? Is it a lack of financial education or is it something else? Here are some of the more common reasons why Canadian consumers find themselves in debt.


Inflation is eating away at disposable income in Canada. It may have started with sustained gas price spikes starting in May 2009, but the COVID pandemic did not help. For a time, it cost more to produce and deliver goods to store shelves. That included the price of supplies as well as salaries.

Unfortunately, inflation affects the cost of food and rent, too. Food prices went up so significantly that the federal government introduced the one-time Federal Grocery Rebate to help low-income Canadians.

At the same time, a housing crisis and higher interest rates make rent almost unaffordable in major centres.

Household Debt

Now, this one is partially outside a regular person’s control. When inflation is out of control, governments step in to cool it by raising interest rates. Unfortunately, rising mortgage interest rates put Canadian budgets in trouble.

According to Statistics Canada, Canadians are $2.1 trillion dollars in residential mortgage debt from chartered banks and non-bank lenders. Monthly variable mortgage payments cost more now, as well as lines of credit.

Canadians are biding their time and monitoring interest rates. Those with mortgages up for renewal might consider shorter fixed-rate terms. It is a wait-and-see approach, betting on the hope that rates will go down after 2 to 3 years.

Of course, if you need cash to pay more toward your mortgage, it is really easy to push your non-mortgage expenses ahead a month. That usually means using credit cards.

Credit Cards You Do Not Pay-Off Each Month

We’ve already briefly touched upon the credit card issues, but it is certainly worth mentioning more than once. Perhaps the most prevalent and common reason for consumer debt is the overuse and abuse of credit cards.

Credit cards are not inherently bad. They serve a purpose: a convenient way to spend money without having to carry cash. Most credit cards have valuable insurances, roadside assistance, and fraud protections that you don’t get by paying cash.

Furthermore, credit card points are rewards created new forms of currency, or cash equivalents. In a way, it makes you stretch your money further if you can use points for travel or bill payments.

The problem is the high interest rates for cash advances or unpaid balances. If you cannot pay off your monthly credit card bill on time, you go into high-interest debt.

Credit card interest rate can be as high as 22% or more, and when the outstanding debt load increases, the interest amount paid can be astronomical.

Unless you get a handle on this debt and pay it down religiously, you could wind up with credit card debt that is a lot more than you can handle.

If you want to learn more about how to consolidate your credit card debt, just click the button below.

Missed Payments On Loans

Even one missed payment on a personal loan or a car loan can put you in a precarious situation with your finances. With each missed payment, your outstanding debt load continues to inch higher. Eventually it becomes difficult for you to pay down.

And with every missed payment comes a late fee that’s tacked on to what you already owe, bringing your debt even higher than it was before.

Spending More Than You Can Afford

This sounds pretty obvious, but it’s worth mentioning. Not every Canadian has a budget. Not every person knows their monthly income versus their expenses. Worse, some do know they are overspending but do not care.

People like to have nice things, go to restaurants, go places, and travel. But not everyone can necessarily afford what they want, but they spend like they can anyway.

If you spend more money than you actually bring in, you can certainly expect your debt load to mount. Unfortunately, many Canadian consumers find themselves in this position, which is another common reason for mounting consumer debt in Canada.

If you spend more than you make, you can definitely expect your debt to rise. If you cannot get out of debt, you might consider a debt consolidation loan, a consumer proposal, or bankruptcy.

Not Having A Financial Cushion To Fall Back On

It’s always wise to have a little bit of money saved and tucked away somewhere in case of a rainy day. An emergency fund is fundamental to your financial health. Just knowing you have the extra funds reduces your stress.

The unexpected can always happen, and it’s always important to be prepared.

If you’re not, you could be scrambling to take out payday loans with exorbitant interest rates, borrowing money from friends or family, or racking up your credit card to cover unexpected expenses.

Not Being Disciplined With Your Money

When it comes to money, you absolutely need to be self-disciplined and responsible with every dollar you have in your pocket.

That doesn’t mean being cheap or denying yourself some fun. Remember, managing your money, or staying out of debt relies on consistency. Your motivation is always changing, but if you are consistently reviewing your spending or putting money toward your necessities, you can come out ahead.

For example, if you consistently try to pay off your credit card each month, that does a lot to keep your consumer debt low or non-existent. If you’re not responsible with your money and your credit, you can quickly and easily see your outstanding balance grow to the point of no return.

How to Avoid These Debt Traps

So, now that you know what can get you into financial trouble, how can you avoid getting stuck in these predicaments? Here are a few suggestions.

Only Spend What You Have In The Bank Or On A Secured Credit Card. This does not mean giving up plastic. You can easily use a secured or prepaid card instead of cash. However, a secured or prepaid card only lets you spend up to a certain amount.

That amount is your deposit, which is cash you have already. You are not borrowing from a lender and using revolving credit.

Don’t Spend More Than 30% Of Your Credit Limit. If you do use a credit card, don’t use more than 30% of its credit limit. Doing so will not only make it much more difficult to pay down the balance (as well as the interest portion on top of that), but it could also negatively impact your credit score.

Keep your credit utilization down to make it easier to pay off your credit card bills in full every month while also keeping your credit score in check.

Make Your Bill Payments On Time. Forget about having to pay late charges on missed payments. Instead, make sure every bill is paid on time and in full every month. Not only will this help you stay on top of your debt, but it will also help to keep your credit score healthy.  

Save For Your Emergency Fund. Having a financial cushion to fall back on can be a real lifesaver when the time comes. Try to save up about three to six months worth of all the bills you usually have to pay every month just in case you lose your job, you suffer a medical emergency, or your car breaks down, among other things.

Final Thoughts

There’s a trend across Canada when it comes to growing household debt. Don’t be part of this trend, as it will do nothing but bury you in debt that you’ll find extremely difficult to climb out of.

If you are currently having trouble dealing with your debt, Loans Canada can help. We’ve helped thousands of Canadians just like you, pay down their debt and get back on track to a healthier financial future.

FAQs About Canadians And Debt

What is an emergency fund?
An emergency fund is your savings that you do not use for anything else except in case of an emergency. An emergency can be job loss, extended time off work, or something else you did not plan. A general rule of thumb is to calculate at least 6 months of essential expenses and have that amount in your emergency fund.
What is consumer debt?
Consumer debt is money you owe that is not related to a mortgage. It usually involves money you owe on credit cards for goods and services linked to everyday life. Clothes, food, gasoline, entertainment can be consumer debt.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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