Pattie Lovett-Reid

Chief Financial Commentator, CTV

Follow|Archive

The party is over.

A new survey by MNP Ltd. has found that 53 per cent of respondents said they are $200 or less away from not being able to meet all of their monthly bills and debt obligations. The number is alarming as it marks a five-year high in the agency's consumer debt index and marks a 10-point jump from a December survey.

This number includes the 30 per cent who said they are already insolvent, with no money left over at the end of the month. 

Government support programs offered up a little financial flexibility over the past year but, at best, these programs were intended to be temporary. In many ways COVID-19 benefits masked the seriousness of Canadians who were drowning in debt. 

“The anxiety Canadians are feeling about making ends meet - or already unable to do so - tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards,” said Grant Bazian, president of MNP LTD, in the report published Thursday. 

Households may have tried to save more and spend less amid the pandemic, and - to be fair - some have been very successful at doing just that. However, there are others who have taken on more debt due to job loss, wage reductions or desperately trying to keep small businesses afloat. 

According to MNP, a quarter of Canadians took on more debt amid the pandemic. Among respondents, 20 per cent said they used savings to pay bills, 14 per cent used credit cards, seven per cent used a line of credit, while three per cent took out a bank loan or deferred mortgage payments, respectively. 

“Those taking on more debt are becoming increasingly vulnerable to interest rate increases in the future. They might find that their debt becomes unaffordable when that happens,” Bazian wrote. 

Higher rates should be a real concern to those who borrow and naively think rates won't head higher once the economy warrants it. In fact, I find it outrageous that six in ten respondents said that the current low-rate environment makes it a good time to buy things they might not otherwise be able to afford. 

We need to stop spending if we can't afford it - now. 

What would be far more appropriate for struggling households would be to hit the pause button and look for solutions to get out of this debt trap.

​Bazian suggested that a Licensed Insolvency Trustee might provide a spate of options for those struggling to make ends meet. These included setting up a firm monthly budget, refinancing credit options to decrease fees and debts, selling high-value assets that might provide additional cashflow, consolidating debts to achieve lower interest rates on a single payment, seeking consumer proposals with creditors, or declaring bankruptcy.