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The Top 7 Reasons Why Canadian Debt Is Raising!

“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”

-Ogden Nash

Debt is like a friend in disguise. You acquire it to help you, and it does help, but when the time comes it will also rob you. And that is why it is important to pay off debts on time. Do you know how many Canadians in debt face the same situation and why Canadian debt is increasing? Let us find out. 

A Little Bit About Canadian Debt

In the year 2019, the overall Canadian debt was 177 percent of disposable income. In 2018 it was 168 percent. If I quote in simple words, it means that for every $1000 of income you have the debt is $1770 which is very clearly at the upper trajectory side. 

Among the different types of Canadian debt, 40 percent of the weightage goes to the mortgage. Every 9 out of 10 Canadians have a mortgage loan for buying a house. The other types of debts have the following weightage.

  • Credit Cards: 29 percent
  • Vehicle Loans: 28 percent
  • Line of Credit: 20 percent
  • Student Loans: 11 percent
  • Mortgage on secondary loan, Rental Property, Business/Vacation Home: 5 percent
  • Personal Loan: 5 percent

Some Other Facts…

  • In 2014, only 2 percent of Canadians were lagging in paying their bills and other financial requirements, but in 2019, it reached 8 percent. 
  • Canadian under the age of 65 or having household income below $40,000 fail to fulfill their financial commitments. The ratio is 22 percent for individuals having the age of 65+.
  • Every 1 in 4 individuals has to borrow money in order to buy food or support their daily needs in Canada. Which in terms of percentage comes around 27 percent. 
  • Every 1 in 6 Canadians claims that their expense outflow is higher than their monthly income. 

It looks pretty alarming, right? But the question is how do they reach this point? Why is the Canadian debt rising so fast? 

Reasons for Canadians in Debt

1. Exceeding Credit Card Usage

A credit card can become a big problem if you treat it more than a plastic card at your disposal. Do you know that in 2009, the overall Canadian credit card balance was more than $100 billion? The average credit card debt was around  $4,240 in the year 2019. Around 72% of Canadians carry a credit card. More than 41% of Canadians have a credit card spending of more than $10,000. 

It shows how much credit cards are being used by people but more often it is misused then it is used. And that becomes an issue and contributes to Canadian debt. In addition to that, the interest rate can also be a contributor to increasing debt as many times, it is even more than 22%. Imagine you have a credit card debt of $1000 and you have to pay $220 every month as an interest payment. And when you fail to do so it just compounds.

Read: How To Choose The Best Credit Card In Canada?

2. Missing Payments

One of the reasons that the debt level increases are when you fail to honor your payments on time. As mentioned above there are various kinds of financial commitments that an individual has to fulfill each month. As the debt level goes higher than the income, it is going to be a challenge to make payments on time whether it’s a mortgage loan or an education loan. 

These missed payments not only impact the credit score but that they are going to play a great role in increasing the overall that.

Read: What is the Average Credit Score in Canada?

3. The Case of Wants Vs. Needs

Human nature is built in a way that we want things even if we don’t need them. That’s the case with want vs. need. Grocery shopping is a need while going out for dinner in a luxurious restaurant is a want. When you have a credit card, you can get distracted easily and spend money on things that you otherwise can’t afford. 

When the expenses increase then the income, the balance is going to explode and that will cost you increased debt. In simple terms, when you spend money more than you afford, it is going to invite financial troubles.

4. Lack of Financial Discipline

It is not your income that makes you rich but the spending habits. When you do not honor your spending limit and your income, it reflects poorly on your financial habits. And bad financial habits lead to financial stress. You have to control your expenses in order to save yourself from more debt. 

You have to be responsible for how you earn and how you spend. When you feel responsible and male disciplined steps, you will soon reap the benefits. After all, there is no point in having an outstanding balance for your debt, right?

Read: Do You Need Life Insurance in Canada?

5. Lack of Savings and Investments

Imagine that you are under some financial stress and no way to come out of it as you have a lack of savings? And that’s the reason that Canadian debt is continuously rising. When you have money and invest it in financial assets, it can multiply it. 

There are various ways in which you can save money, for example, just open a fixed deposit account or search for a financial instrument that can allow you to invest a small amount but can sustain it for the long term. Remember that even a penny saved is saving and comes in handy to you when you are in need.

6. Not Abiding Monthly Budget

A budget is something that tells you where your money should go so you don’t have to wonder at the end of the month where you spent it. It is crucial that if you want to sustain your money for longer-term you need to make a budget and stick to it. 

Lack of budgeting skills can make you spend money that you don’t even have and in the end, it will increase your debt. Budgeting skill is a life-saving skill and you must implement it in your daily life if you want to come out of a troublesome financial situation.

7. Lack of Financial Literacy

We learn most of our skills in school but when it comes to financial literacy or education it’s not even a subject. It impacts us in the long run when we are adults and finally, have money to spend. And that leads to money costing us too much and spending money before we earn it. Lack of financial literacy can make you bankrupt when combined with a lack of budgeting skills and self-discipline. That is why you must implement personal finance management in your life and stop the debt level from going northwards.

Read: How To Choose The Right Life Insurance In Canada?

Things to do for Reducing Your Debt Level 

  1. Spend money only when you have it in your bank account. 
  2. Restrict your credit card usage limit to 70 percent. 
  3. Make the habit of paying your credit card bill in full every month. 
  4. Pay your bills and other financial commitments on time. 
  5. Educate yourself about personal finance and financial literacy. 
  6. Learn to save money and invest it. 
  7. Save for emergency and future goals. 

I hope that this article has helped you understand the Canadian debt and you can manage your debt effectively, reducing it over time with a disciplined financial strategy. In the words of Adam Smith, “What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?”

Devanshee Dave

Devanshee is a staff writer at She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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