Credit Cards

Debt is at a record high, but Canadians having no trouble paying credit cards off

By: Jessica Mach on August 7, 2019

Consumer debt levels may have recently hit record highs across Canada, but with the unemployment rate holding steady, Canadians are more than equipped to handle them.

Consumer debt grew by 5.6% in the first quarter of the year, compared to the same period in 2018, according to Fitch Ratings, a credit rating agency in the U.S.

Charge-offs for credit card debts — e.g., when a credit card company determines that a specific debt is unlikely to ever be collected — also increased to 3.04% in the second quarter of the year, up from 2.88% in the previous quarter.

Still, Fitch Ratings maintains that Canadians are keeping up well. The agency predicts that charge-offs will ease off in the near future, partly because the number of 60-day delinquencies for credit card debts have dropped. These delinquencies refer to debts that have been outstanding, or left unpaid, for more than 60 days. 

In addition, credit card payment rates have increased to 45.93% in the second quarter, up from 42.4% in the first quarter.

Fitch Ratings attributes these improvements to strong employment numbers. While the unemployment rate technically increased in June, climbing to 5.5%, the May rate of 5.4% represented a historic four-decade low.

Housing debts have also levelled off in recent years. “We saw that debt related to housing started to level off a little bit,” Ian Rasmussen, senior director at Fitch Ratings, told Bloomberg on Tuesday. “It remains an area to watch but not to the same level it was a couple of years ago, when we saw a straight increase in debt balances.”

The conclusion? Even if debt levels are rising, Canadians are more than capable of servicing them.

“Fitch does not expect the elevated debt levels to have a material impact on Canadian credit card ABS as current credit enhancement levels are sufficient to withstand any economic headwinds,” the agency’s release read.