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Pattie Lovett-Reid

Chief Financial Commentator, CTV


The numbers are out from Statistics Canada on Canada’s second-quarter debt-to-income ratio. In other words, how much we owe for every dollar we have coming in. In the past, that number has been stubbornly high, hovering over 1.75 of debt for every dollar of disposable income.

However, the second-quarter headline number is more impressive than the details. We now owe $1.58 for every dollar of disposable income. Household debt as a portion of disposable income fell to 158.2 per cent from 175.4 per cent, while household disposable income increased 10.8 per cent.

Helping out these numbers are government transfers to households living close to the margin that were economically vulnerable due to the COVID-19 pandemic.

In my opinion, this is not an accurate reflection of the debt levels Canadians are carrying. 

As well, during a period of economic lockdown, jobs were put on hold and those who were already financially-challenged benefited from mortgage deferrals, creditors hitting the pause button, and collection requests for outstanding debt being put on hold. Combined with the government benefits, the numbers reflect more favourably then we might otherwise have seen. 

My fear is that the financial flexibility many have been benefiting from will soon come to an end – and that could leave some families scrambling, and debt-to-income levels rising again. 

I asked Keith Emery, co-CEO of Credit Canada, three key questions on how Canadians can take control in a challenging situation. Here is what he had to say:

1. How can Canadians prepare to start making payments once the deferrals come to an end?

“The place to start is looking at available cash flow. If the money is there to start making payments, the problem is solved. However, it’s more likely that people will need to adjust their finances – something must be cut out of the budget or additional income sourced. Make a realistic budget and don’t give up on it.

For those with deferred student loan payments, it’s important to look at whether the income level is low enough for the Repayment Assistance Plan. Head to the National Student Loans Service Centre sooner rather than later to check.

When it comes to deferred credit cards, how high are the balances? There may be methods of rolling this into something that can be paid off with lower payments over a longer period of time, such as HELOCs (home equity lines of credit). Talk to your bank about consolidating higher-interest credit accounts.

Deferred mortgage payments are the elephant in the room. For Canadians looking to adjust their budget in preparation for resumption of mortgage payments, they need to look at taking some or all of what that mortgage payment would be, and put it into mandatory, untouchable savings immediately.”

2.  How can you avoid taking on more debt?

“Start by looking at the means by which debt is incurred. Often, the slow creep into greater consumer debt is credit cards. Stop using them and force spending onto debit cards – this is limited by the availability of funds which will lead to an eventual prioritization exercise as to what does and doesn’t get paid.”

3. What do you do now if you are in over your head financially? 

“Recognizing that you’re in over your head is a huge part of the battle, and this assumes someone has done the math (a proper budget completed), or has spent enough time reviewing their debt statements to realize they’ve reached the end of the line. People can consider some or all of the following:

  • Prioritization of what cash outflows will remain and what will be cut
  • Determine whether any outside assistance will help enough to solve the problem – this could include consolidations, government programs
  • Seek third-party intervention such as non-profit credit counselling at Credit Canada to see what other options may be available that have not been considered yet​”

​To the extent you can, now is the time to take back your financial control and, if necessary, seek the help you need.