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How Covid-19 Affected Canadian Household Debt

The COVID-19 pandemic has changed the shape of Canadian debt. Consumer debt has risen to record highs. Even though consumer credit card debt loads have declined significantly. The Bank of Canada is warning Canadians they are taking on too much debt. Driven by the ballooning real estate markets across the country. Mortgage debt in British Columbia and Ontario is a huge portion of Canadian debt. Government support helped pull Canadians through the pandemic. Delayed interest and deferred mortgage payments helped protect households. Government income support and low-interest rates helped stimulate the economy.

For example, those who maintained employment at the height of the pandemic lockdowns had higher disposable income. But nowhere to spend it. They contributed to reducing household debt on credit cards and building household savings. Supply chain issues and semi-conductor shortages may contribute to slower economic growth. As we enter a post-pandemic world, Canadian debt is largely locked in the housing market. There are some big questions on the future of the Canadian economy and debt.

Canadian Households’ Ratio of Debt-to-Income Rise at A Record Rate

In the fourth quarter of 2020, Statistics Canada found a 174% ratio of debt-to-income. This debt ratio has maintained this high since. The second quarter of 2021 saw the ratio at 173%. An 8.61% increase from the second quarter of 2020. Each quarter compared to show the largest annual increase in the debt ratio since the 90s.

What is the debt-to-income ratio?

The debt-to-income ratio is the amount of debt Canadians have for every dollar they earn. When this amount is over 100%, it means you owe more than you earn. However, this is a dangerous financial position. It means you are over-leveraged. You are more susceptible to economic waves this way, such as increased inflation. The debt-to-income ratio is also commonly called debt service.

At the beginning of the COVID-19 pandemic, the ratio had a brief decline. Reaching as low as 159.36% in the second quarter of 2020. This dip was largely driven by lockdowns and restrictions. Canadians simply could not spend their money in the same way. This combined with government financial support, like CERB, allowed Canadians to navigate the early days of the pandemic. They had more money and supports with less ability to spend. Debt ratios could continue to climb as government supports decreases. We are also reentering pre-pandemic levels of employment. Overall, the debt-to-income ratio is shockingly high in Canada.

Canadian Households Have $1.73 In Debt for Every Dollar They Make

Canadians now have an average of $1.73 debt for every dollar they earn. A large amount, which totals to $2.1 trillion dollars of debt in the country. Debt categories include mortgages and non-mortgage debts. The pandemic brought a wave of relief for non-mortgage debts. They declined significantly. While mortgage debts climbed significantly. They make up the bulk of Canadian debt.

What is the average Canadian household debt?

Canada Mortgage Debt

Mortgages are loans taken on to buy property. In 2020, this debt rose to $28.7 billion. Reaching a total of $1.63 trillion.

Non-Mortgage Debt

Non-mortgage debts include credit cards, personal debt, store cards, overdrafts, payday loans, car loans and in-store credit. These debts average at approximately $23,035 per Canadian. Statistics Canada reported the total non-mortgage loans in Canada total $789.5 billion at the end of 2020. Find full trends on non-mortgage debts.

Impact of COVID-19 on Household Disposable Income

At the beginning of the pandemic, just before lockdowns in March 2020, consumers rushed out to buy supplies. There was a small increase in debt and spending in February 2020. When March came along, there were federal and provincial lockdowns and restrictions. Many people did not want to and could not spend their money. As a result, there was an increase in disposable income. Some households were able to save, others were able to pay off debts. Those in higher income brackets were generally less affected by the pandemic. Those in lower-income brackets were more likely to have lost their income. Government supports like CERB provided money for Canadians to survive. Many of these Canadians were unable to pay down their debts. But disposable income was more common overall.

Canada’s Boost to Household Income Was Transitory

As the country adjusted to online, pickup, and delivery buying options. Spending eventually picked up again. Housing markets in British Columbia and Ontario experienced huge booms. With low-interest rates on mortgages. A low supply of homes in Canada and high demand sent prices sky-high. Consumers quickly found ways to spend their boosted household income in an inflated market.

How has COVID-19 affected your debt?

Not everyone has made it through the pandemic on better terms. COVID-19 is still a challenge in our daily lives. Affecting both our health and finances. Government supports are slowly ending. If you have faced challenges financially, it may be worth understanding what caused your debt. There are a variety of options in dealing with debt. Everyone needs support and can use help navigating their finances. Contact Consolidated Credit Counselling of Canada if you would like professional help. There is no need to navigate these stressful times alone.

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