Financial advisors in Sudbury, Ont., say they’ve seen a sharp rise in credit card debt over the past year and a half, which matches national trends.
Last week, a report from Equifax Canada revealed that credit card balances in Canada have reached their highest level in the last quarter since the last quarter of 2019. The report indicates that there has been a 6.4% increase in credit balances between the first and second quarters of 2022.
John Cockburn, financial empowerment co-ordinator at the Sudbury Community Service Centre, said he has found his clients are taking more credit.
“More and more people are relying on their credit cards to supplement their income and buy things they couldn’t otherwise afford,” he said.
“I kind of attribute that to rising inflation with not raising the minimum wage, or raising wages where they work.”
Cockburn said many of his clients have credit card debt in the range of $22,000 to $25,000.
People between the ages of 40 and 50 are on average the most in debt, he said, because they have had more time and life circumstances to go into debt.
Cockburn said a common mistake people make with credit cards is paying only the minimum payment each month, but don’t think about the effect high interest rates can have in the long run.
As an example, he said a credit card with $2,000 debt and an interest rate of 28% would take 30 years to pay off with minimum payments. During this time, the person will have repaid over $9,000 due to the high interest rate.
Cockburn said there are only two ways people can balance their budget: spend less or make more money.
For most people, he said, spending less would be the most realistic way to get debt under control.
“My philosophy is to look at all the forms of debt you have, figure out which one is charging you the most interest, and focus on getting rid of that one first,” Cockburn said.
People will talk more freely about sex than about their money.– Linda Cartier, Registered Financial Planner
Linda Cartier, a certified financial planner with Financial Decisions in Sudbury, said many people have decided to indulge themselves with online shopping sprees during the pandemic to improve their perception of their lives.
“And it all comes down to roosting with extra debt,” she said.
Cartier said recent increases in inflation and the cost of living have added to the debt many people already had.
Like Cockburn, Cartier said people should focus on paying off their debt at the highest interest rates first.
“When you pay off a debt, you earn regardless of that interest rate, tax-free,” she said. “So that’s the best rate of return you can get.”
Cartier said many people “fly by the seat of their pants” when it comes to personal finance because they didn’t learn best practices in school and don’t talk about money with their families.
“People will talk more freely about sex than about their money.”