Canada’s debt-to-income ratio hits fresh record: StatsCan

Canadian consumers continue to rack up record debtdespite concerns about the health of the economy, according to data released byStatistics Canada on Thursday.

Canada’s household debt-to-disposable income ratio rose to new high of 163.3 per cent in fourth quarter of 2014.

Put another way, households held roughly $1.63 of credit market debt for every dollar of disposable income as of the end of last year, StatsCan said.

“The new household debt numbers are a big concern,” said Scott Hannah, President and CEO of the Credit Counselling Society, a non-profit service for consumers.

“It shows the majority of Canadians are still relying on credit to manage their monthly expenses.”

StatsCan said total household credit market debt, which includes consumer credit, mortgage, and non-mortgage loans, came in at more than $1.8 billion at the end of December, which is an increase of 1.1 per cent from the third quarter last year.

Consumer credit debt was $519 billion, up 0.8 per cent, while mortgage debt advanced 1.2 per cent to about $1.2 billion.

Late last year, StatsCan adjusted its previous debt-to-income data to reflect the fact that household mortgages had less value than earlier estimated.

The previous record debt-to-income ratio of 164.1 per cent in the third quarter of 2013 was trimmed 161.7 per cent. The ratio for the second quarter of 2014 was reduced to 161.5 per cent from its original 163.6 per cent.

In the third quarter of last year, Canada’s debt-to-income ratio was 162.6 per cent.

The Bank of Canada’s surprise interest rate cut made in January should help ease Canadians’ debt load moving forward. Still, there’s a lingering concern that high debt loads leave Canadian households vulnerable to financial shocks, such as a loss of income or employment, or a sharp rise in interest rates, Hannah noted.

“At some point interest rates are going to increase,” he said. “The best course of action for consumers is to take advantage of the low interest rates to pay down their debts instead of taking out new loans and mortgages.”

Credit monitoring agency Equifax released a report this month showing Canadian consumer debt hit $1.529 trillion at the end of 2014.

That debt, including mortgages, is up from was $1.513 trillion in the third quarter of last year and $1.42 trillion a year earlier, driven higher by installment and auto loans, Equinox said.

The average debt held by Canadians, excluding mortgages, increased by 2.9 per cent to $20,967.

“It’s a cautionary tale what we are currently seeing in the Canadian economy,” said Regina Malina, senior director of decision insights at Equifax Canada, in releasing the latest numbers.

“The rapid decline in oil prices caught many by surprise. And, that’s the point - consumers and business owners need to be more vigilant. When economic change happens, it can happen very quickly and can challenge previously observed stability of key economic and credit indicators.”

Earlier this week, the International Monetary Fund also raised concern about Canada’s overheated housing markets and high household debt levels.

Hannah said his organization, which offers free advice for Canadians overwhelmed with debt, receive more 5,000 phone calls a month from people looking for help to pay down their debts.

“As Canadians start to become more aware of their personal finances, it’s our hope that the household debt ratio will start to ease back down,” Hannah said.