Half of Canadians within $200 of not being able to cover bills, debt payments: survey

The number of Canadians on the brink of financial insolvency has reached a five-year high, with more than half of people $200 or less away from being unable able to meet their financial obligations each month, according to a recent survey.

As pandemic-related financial support and loan deferral programs slow down and ongoing economic disruptions impact household incomes, 30 per cent of Canadians say they are already insolvent, with no money left at the end of the month to cover their payments, according to the latest MNP Consumer Debt Index.

“We saw that pandemic-related financial relief measures provided some breathing room over the last year, but now we’re seeing a reversal,” Grant Bazian, president of MNP Ltd., said in a press release.

“The number of Canadians with virtually no wiggle room in their household budgets has reached a five-year high. The anxiety Canadians are feeling about making ends meet – or already being unable to do so – tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards.”

Even those who aren’t insolvent are finding less room in their budgets, according to MNP.

According to the survey findings, the average Canadian is left with $625 after making their monthly payments, down by $108 or 15 per cent from December.

A quarter of Canadians have taken on more debt as a result of the pandemic. Twenty per cent of those have used their savings to pay for bills and 14 per cent of respondents used their credit cards to pay for monthly obligations. Seven per cent were forced to use a line of credit to pay for their bills.

“Even though some Canadians are spending less and saving more as a result of pandemic measures, others are being pushed further into the red, taking on more debt to stay afloat after job, wage, or small business loss,” Bazian said in the release.

Though interest rates have remained low throughout the pandemic, those forced to take on more debt will be increasingly vulnerable when rates rise, Bazian noted.

While over half of those surveyed are concerned about their ability to repay their debts should rates increase, 59 per cent still believe now is a good time to buy things that they otherwise might not be able to afford thanks to those low rates.

“Unfortunately, using credit is a reflex amongst many Canadians. For those concerned, it is probably a good time to stop thinking of debt as the solution when it can actually become a trap,” said Bazian.

Canadian insolvency filings hit a 20-year low last year, according to the Office of the Superintendent of Bankruptcy.

Consumer bankruptcies and proposals, along with business bankruptcies, were down 30 per cent year-over-year in 2020 – a direct result of the government aid programs that kept many individuals and businesses afloat during the pandemic.

"What we can't see in the insolvency data yet is how things will change as the taps are turned off,” Mark Rosen, chair of the Canadian Association of Insolvency and Restructuring Professionals, said in February.

Now, as creditors start to increase collections, Bazian is urging Canadians to be proactive about improving their financial wellbeing and to seek professional advice if concerned about mounting consumer debt.

“I cannot stress this enough: deeply indebted individuals – particularly those who find themselves taking on more debt to pay bills – should seek professional debt advice right away,” he said.

“Bankruptcy is not the only option, nor is it always the best option for dealing with debt. Licensed Insolvency Trustees offer free, unbiased advice about your individual situation and the options available.”