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Canadians are going into credit card debt again

Early in the pandemic, many Canadians got their financial house in order by paying off credit cards and other high-interest debt. It certainly helped that spending options were limited and the federal government spent billions in financial aid for those whose paychecks were affected.

Now the tide is turning. According to Statistics Canada, households held about $80 billion in credit card debt with chartered banks in February, an 8.9% increase from a year earlier. While that sum is far from peaking — credit card debt stood at $89.6 billion in December 2019 — it has steadily increased over the past year.

Accumulation is not inherently problematic. People are finding more and more opportunities to remove their plastic as the economy reopens, as the country’s unemployment rate is at an all-time high and wages pick up. Households have saved an additional $300 billion during the pandemic, compared to typical savings rates. And delinquency rates – that is, the proportion of people behind on required monthly payments – remain low, “with no significant signs of concern,” credit reporting agency TransUnion said in a statement. March report.

The larger context, however, is filled with uncertainty. As Canadians paid off their credit cards, they took out billions of dollars in new mortgages, pushing household debt burdens to record highs. The Bank of Canada is now aggressively raising interest rates to control inflation, which will lead to higher debt servicing costs. High inflation also absorbs part of the savings cache.

“Overall, high household debt remains a vulnerability, adding an additional layer of risk to the Bank of Canada’s tightening plans,” Bank Toronto economist Ksenia Bushmeneva wrote this month. -Dominion, in a report. “It will be necessary to remain vigilant to ensure that this hiking cycle does not end in tears.”

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