Canadians increasingly rely on credit cards as cost of living soars: Equifax

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An illustrative image of Master car, Revolut, Visa and Visa debit cards.  Tuesday, January 11, 2021, in Edmonton, Alberta, Canada.  (Photo by Artur Widak/NurPhoto via Getty Images)

A new survey from Equifax Canada showed Canadians’ use of credit cards was up for the sixth consecutive quarter. (Photo by Artur Widak/NurPhoto via Getty Images)

According to Equifax Canada, more and more Canadians are relying on their credit cards to fund day-to-day expenses as the cost of almost every aspect of life becomes higher.

New data from the credit reporting firm revealed that credit card usage increased for the sixth consecutive quarter and the average credit card balance stood at a record high of $2,121 at the end of the month of September.

“We certainly know from the economic conditions that the pressures are coming from all directions,” said Julie Kuzmic, chief compliance officer at Equifax Canada, in a phone interview with Yahoo Finance Canada.

“Canadian consumers are facing rising interest rates for their mortgage payments, which will also affect the interest rates on lines of credit that people may have, the circumstances of inflation are really affecting utility bills. groceries, and then there’s the price of gas, which affects a lot of people so it really feels like a perfect storm.”

The survey found that only half of Canadians said they felt comfortable with their personal economic outlook, down from 61% last year.

One of the worst financial mistakes you can make is relying on credit and only making the minimum payment to supplement your income.Laurie Campbell, Bromwich+Smith

Total non-mortgage debt per consumer averaged $21,188 in the third quarter, levels not seen since the first quarter of 2020, according to Equifax.

The survey was conducted using Leger’s online panel and interviewed 1,006 people through mid-October.

Fifty-two percent of respondents were concerned about being able to meet monthly bills such as rent, electricity and insurance. The older the respondent, the more likely they are to worry about paying their bills on time, according to the survey.

To keep their grocery bills down, many say they used coupons or bought items on sale, while others bought less food.

There were provincial differences in the degree of financial burden Canadians felt. Residents of British Columbia, Quebec and Atlantic Canada were most likely to express concern about debt and job security, while Albertans were the least concerned about these issues.

Alternatives to credit cards

“It’s no surprise that this report confirms the fact that Canadians are using credit cards to bridge the gap between income and spending,” said Laurie Campbell, director of customer financial wellbeing, over the phone. Bromwich+Smith.

“I really believe that inflation has shaken people to the core, as well as the fact that interest rates have gone up. And people who might have counted on some home equity are now facing the reality of a decline in home values ​​and increased indebtedness.

Credit cards are among the most expensive types of debt an individual can incur, with many cards carrying interest rates of around 19% to 29%.

“You can imagine if you’re only paying the minimum payment, how much interest you’re going to pay,” Campbell said.

“One of the worst financial mistakes you can make is relying on credit and only making the minimum payment to supplement your income. It’s a recipe for disaster and unfortunately it’s not sustainable.”

If someone really needs to go into debt to make up the budget gap, Campbell says a line of credit might be a better option because it typically has lower interest rates than credit cards. However, cutting expenses and living within your means should be the ultimate goal, she says.

“At the end of the day, if you don’t live within your means, these things are going to explode. So the reality is you have to take a look at your budget and you have to know where you can cut back,” she says. .

It could be like getting a second job or taking public transit to work instead of driving, she adds.

Repair your credit score

As consumers adjust to the new reality of high inflation and rework their budgets, those looking to restore their credit score can start by making sure bill payments are made on time.

“It’s a very important factor in credit score calculations,” Equifax’s Kuzmic said.

Credit scores and how they are calculated are often misunderstood. Lenders might use multiple credit scores when evaluating a person’s credit application, she adds.

“I always like to remind people to focus on the information in your credit report because all score releases are based on that information in your credit report, so making sure everything is accurate is key. “, she said.

A score of 750 out of 900 is the threshold considered good. Lenders also don’t tend to discriminate between individuals who are in this good credit range, meaning someone who has a score of 780 will be on the same playing field as someone in another with a score of 880, says Kuzmic.

Michelle Zadikian is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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