Household Debt in Canada at Record Levels

December 15th, 2010 by A Licensed Insolvency Trustee

Bank of Canada Governor Mark Carney has warned that Canadians are carrying too much debt. On Monday Statistics Canada released a report showing that the ratio of household debt-to-disposable income reached the highest level on record in the third quarter, at 148.1%, which is 6.7 per cent higher than last year. This means, in simple terms, that if you earn $10,000 in disposable income per year, you are carrying almost $15,000 in debt.

That may not seem like a high number, but it’s the highest number in Canadian history, and it’s even higher than the 147.2% level in the United States, which is a scary statistic given the serious economic problems faced by Americans.

So, what does this mean to you?

To start , as I have already commented in the press, I find it amusing that the Bank of Canada, which has kept interest rates artificially low to encourage us to borrow, is now worried that we are borrowing too much.

However, as a bankruptcy trustee I agree that too much debt is a problem. So, what can you do about it?

First, start taking steps now to reduce your debt. Make a budget, and look for ways to cut expenses, and then use those savings to start repaying your debt.

Next, spend less. There are lots of resources to help you spend less at Christmas, so you can avoid debt and have a stress free Christmas. Otherwise you risk having it all in December, but losing it in February when the Christmas bills come in.

Third, have a plan. Before you go shopping, decide who you need to buy for, and what you can afford to spend, and don’t overspend.

Finally, pay cash, or use debit. If you don’t borrow, you can’t get in to debt.

What do you do if you already have more debt than you can handle? Review your debt management options, and consider filing a consumer proposal or personal bankruptcy if that’s the appropriate solution to your financial problems.

The Bank of Canada Governor is correct: household debt in Canada is a problem, and we should deal with it now, before the situation becomes even worse.

A Licensed Insolvency Trustee

2 Responses to “Household Debt in Canada at Record Levels”



March 19, 2011 at 7:17 am, Dave a said:

“if you earn $10,000 in disposable income per year, you are carrying almost $15,000 in debt. ”

what exactly are you trying to say with this statement? are you saying that in this example the average Canadian owes 50% more than he can pay per year? I would like to understand by seeing a further breakdown of just what this household debt actually means with real numbers please.

Thanks in advance



March 27, 2011 at 2:44 pm, TrusteeJ said:

The ratio of household debt to disposable income is 148% (and increasing each month). Household debt includes all debt, including mortgages. I’m not saying that Canadians owe 50% more than they can pay in a year, because all debt does not become due in a year (a mortgage obviously lasts for many years).

I might earn $100,000 in a year; if my only debt is a $150,000 mortgage, I would have a debt to income ratio of 150%. Is that bad? Probably not, because on a $100,000 salary I can easily afford to make the payments on a $150,000 mortgage. Of course if I earn $10,000 per year and I’m carrying $15,000 in credit card debt I have a serious problem.

My point is this: our debt continues to increase. A few years ago the ratio was less than 100%, now it’s almost 150%. It’s the trend that’s scary, not the absolute numbers.

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