Generally, credit cards are intended to be used as a convenience, for a quick disposable purchase, like putting gas in the tank or eating out. You know – monthly budget items. Making credit card payments monthly for those items makes it easier to keep within that budget. Purchases for assets, such as a vehicle are usually taken out as a loan. Loans have better interest rates and are intended to be paid off over a specific period of time.
In that credit card purchases are for monthly budget items, I like to pay off the balance of my credit card monthly. The reason? Well, as I like to preach, “any time you do not pay off what you spent in a month, you are living beyond your means”.
Because of my understanding of this, I was likely more shocked than the average person might be to find that there were a few times lately when I didn’t pay off the entire balance of my credit card at the end of the month. As a matter of fact, when I started to analyze my credit card habits, I found that this was occurring more and more.
Why have my credit habits changed?
The answer, although simple, was subtle, gradual, almost undetectable. I couldn’t point to one single thing that had changed in my spending pattern; yet something had drastically changed.
After in-depth research it became clear that I was not dealing with a simple problem – one issue that could readily be rectified. Rather, I was dealing with a much larger situation in its entirety.
The issue affecting the change in my credit card use was in fact the pernicious effect of our changing economy. A quick google search raised article after article that left me utterly astounded.
I don’t think I exaggerate when I say we are facing, among other things, a credit crisis in Canada.
I am not alone.
The first thing I discovered was that I was not alone. To understand what I am going to say next, take a deep breath and prepare for a lot of numbers. I only state them so that you will fully understand the gravity of the situation.
According to an Equifax press release for June of 2023, the number of consumers missing payments on at least one non-mortgage product, increased 18.8% from the first quarter of 2022.
The same release reported that when spending is compared to the pre-pandemic period, consumers are spending 21.5% more each month on their credit cards. Now, that is a very concerning gap!
Consumer Spending
Really? I knew I was missing payments, but was I also one who was spending more?
In August of 2023, Pamela Heaven of the Financial Post, reported that the amount Canadians are carrying on their credit cards is up 9% over the past 12 months alone. In addition, the amount Canadians are paying on their credit cards decreased by 2.8%.
Stats from Equifax Canada for late 2022 show there was a 7% year-over-year increase in the total debt owed by consumers.
Brace yourselves. The same study shows Canadians owe $2.36 TRILLION dollars! Considering the size of our population that is a huge amount of debt for us to carry. If that were not bad enough, the problem is not slowing down.
Regardless of our current enormous debt load, Canadians are applying for more credit. TransUnion reported that in 2023 the demand for credit has continued to grow, with applications up 17%.
Household debt in Canada now ranks as the highest of any other G7 country!
I think we just defined a credit crisis.
What is going on?
To put all this in perspective, we must take a step back and ask ourselves; what changed, what is happening? What is really going on?
Since I started by pointing out my acknowledged change in my own credit card habit, I asked myself what changed? I didn’t suddenly become obsessed with spending. If anything, I am being more cautious than ever before.
I make a list before heading to the grocery store and certainly won’t go when I am hungry. I consider walking rather than driving, more and more. I am not wandering the malls doing impulse shopping. I carefully consider the menu prices before entering a restaurant.
These are not the habits of someone who suddenly has lost control of their spending. Yet my credit card expenses continue to rise.
I can only gauge the spending habits of the people I associate with and see firsthand. They seem to have the same cautionary approach to spending as I do. If anything, we are more cautious in our spending than pre-pandemic.
So why the Canadian debt mountain? Why the credit crisis? Why is it harder to pay your credit card payments?
Things You Can’t Control
Through my analysis, I have discovered that regardless of my cautionary approach to spending, the prices of the things I rely on daily have been increasing. The increases have not been nominal, but substantial.
According to Canada’s Food Price Index as of September of 2022, the rate for food price increases was higher than anticipated at 10.3%. For 2023 vegetable prices alone were predicted to increase by an additional 6-8%. Food is a large portion of our monthly expenses. When food prices increase they take a very large chunk out of our monthly budget. Simply stated, my grocery budget has gone up substantially.
Food price increases affect restaurant prices, so eating out has also gone up.
The average price of gas in Manitoba as of September 2023 was $1.65 per litre. It is costing a lot more to fill up your tank. With increased gas prices the cost of going to work, grocery shopping or going anywhere has also increased.
Inflation has jumped nearly 10% over the past few years, so the price of nearly EVERYTHING has gone up. Our incomes cannot keep up with this rate of inflation.
Families with lower incomes get hit the hardest. There is no room in the budget to cover the escalating costs. Not surprisingly, Food Bank usage has been steadily increasing since June of 2020, as have credit card expenditures.
Where do we go from here?
Unless and until the economy rights itself, we have to figure out how to manage during this credit crisis. Like any good solution, the first step is recognizing what the real problem is.
My increased credit card bills are not because of reckless spending but are the new reality of our changing economy. Therefore, the only way to lower the credit card expenses to keep up with my income is to change my spending habits.
My current spending habits were supporting my current standard of living, which was in line with my income. Since my spending habits are now exceeding my income, I need to adjust my standard of living. Much easier for some than others.
I have been fortunate enough to have noticed the issue before my credit card debt was out of control. I fortunately can still afford to pay off the credit card and monitor it more closely. I will need to ensure I curb my expenses so that the card is once again paid off monthly. That may mean some tough decisions and some uncomfortable times ahead, but I believe it’s still doable.
I recognize that the luxury of paying off credit card balances is not available to everyone. People who were already living on very tight budgets will not be able to cut back anything further to get rid of their debt mountain. Those who weren’t in the habit of paying attention to their credit cards may also be in for a shock. The interest on large credit card debt makes it very difficult to pay off the cards.
As mentioned, Canadians owe $2.36 TRILLION dollars in debt. I don’t have to be all that wise to recognize that many will not be paying that off.
Solution
The credit crisis won’t be fixed overnight. Even if we get inflation down, food prices lowered, gas prices on track and an increase in pay – the problem will not be solved overnight. Like any crisis, there is fallout. There will be many Canadians holding much more debt than they can afford to pay off. Trillions of dollars in debt.
There are Federal Government legislated solutions to help with that.
Licensed Insolvency Trustees, such as L.C.Taylor, have been trained to deal with anyone in a debt crisis. They can offer solutions to get Manitobans back on their feet. They assist with offering proposals to creditors to settle the debt and if necessary, can erase most debts entirely through a Bankruptcy.
These solutions are intended to give people a fresh start, a reset of their credit situation. These are solutions intended to provide assistance to survivors of a credit crisis.
Going Forward
We are Manitobans, which means we are tougher than other Canadians. We face our problems head on and don’t hide from them. This means that having recognized the country is in a Credit Crisis, we will take the actions necessary to survive the storm. We will cut back where needed, seek the help of the professionals in our Province and come out all the stronger.
Bonnie Hooley, LIT
