MNP: Canada's near-insolvency rate reaches five-year high

Nearly one in three households said that they are already insolvent

MNP: Canada's near-insolvency rate reaches five-year high

The share of Canadians hovering close to insolvency has reached a five-year high, according to a new market analysis by MNP LTD.

The latest edition of the MNP Consumer Debt Index found that as much as 53% of Canadians were $200 or less away from not being able to pay their monthly bills and debt obligations. This represented a 10-point jump from December, and a level not seen since 2016, MNP reported.

Another 30% admitted that they are essentially insolvent, with no money left for payments at month’s end. On average, Canadians are left with around $625 after making their monthly payments, down by $108 (15%) from December.

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

This is despite 59% of respondents believing that the current record-low-rate environment is a good time to buy things that they would otherwise not be able to afford. Approximately 49% said that they’re also “more relaxed” than usual when it comes to carrying debt.

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

Roughly 25% of Canadians said that they have taken on more debt due to the pandemic. Around 20% have used their savings to pay for bills, while 14% resorted to credit cards, 7% used lines of credit, and 3% took out bank loans.

“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. “Those taking on more debt are becoming increasingly vulnerable to interest rate increases in the future. They might find that their debt becomes unaffordable when that happens.”