The Royal Bank shared recently that February marked the slowest year-to-year growth in Canadian household debt in more than a decade. The deceleration of borrowing is a step in the right direction in adherence to the Bank of Canada’s warnings that Canadians are overextending themselves. With a debt to income percentage of 164%, we are still very much in deep debt.
RBC Economics says overall household debt stood at $1.67 trillion in February, up 4.5 per cent — the smallest 12-month increase for any month since June 2001.
Total Canadian mortgage debt stood at $1.16 trillion in February, up 5.4 per cent compared with the same month last year — the smallest since November 2001.
Non-mortgage debt including credit cards, personal loans, lines of credit and other loans stood at $512 billion which is up 2.5 per cent, the smallest 12-month increase since July 1993.
The moderation in the pace of household debt growth reflected a broad-based deceleration of household borrowing as both mortgage and non-mortgage credit growth slowed in February.
Royal Bank of Canada’s stats shows that our spending habits and borrowing habits are improving. The question is will borrowing continue to decelerate? Low interest rates allow consumers to borrow beyond their means, leaving them vulnerable to debt trouble when the interest rates eventually increase.
Speaking of low rates, if the Bank of Canada is maintaining low interest rates in an effort to help out indebted consumers why are credit card companies not lowering their rates? Some credit card companies have even introduced premium cards that charge even higher rates.
What is the draw for such cards? Simply put, credit card companies have done their research and have found that many consumers are willing to spend big bucks in order to claim points or rewards. Perhaps the rewards are earning travel miles or offer better cash back policies; people will spend the extra bucks to qualify for these rewards. Here’s the catch – you need to pay off your full balance on time to get those rewards. If you fail to pay your balance in full, you’ll end up paying interest on your purchases. In most cases, the interest charges end up costing you much more than the rewards points you earned from the purchase. If you’re like most consumers, you’re only making the minimum payment each month. Those rewards will be out of reach until you pay what you owe each month.
While many consumers are using less of their credit cards to purchase goods, those who are using credit cards may be in for a surprising surcharge in the coming future. The Consumers’ Association of Canada is warning that Canadians could soon be hit at the cash register with credit card surcharges of as much as 10% of the cost of their purchases. The association says that could be the outcome of a pending ruling from Canada’s competition tribunal, which is expected to soon decide on a case against Visa and MasterCard that was launched in 2010.
“It’ll be like striking the market place with lightning. It’ll disrupt the whole way that we pay for our goods,” said the Ottawa-based association’s president, Bruce Cran of Vancouver, this week.
We will all be watching to see what happens with this initiative. The added surcharge will likely affect how we make our purchases, which may in turn affect how much we spend. Who knows, maybe statistics will show a continued deceleration in borrowing and spending in the next coming months.
In the meantime, spend wisely and do not borrow unless you have the means to pay it off in full.
For more information on how to spend within your means and how to resolve unsecured debt, call OCCA Consumer Debt Relief for a free financial assessment. We have been helping thousands of Canadians get back on track with their finances and resolve their debt for over eleven years. Let us help you.
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