Canada’s largest insolvency firm warns that two-thirds of Canadians say that they “desperately” need interest rates to go down.
MNP’s latest Consumer Debt Index, which measures Canadians’ ability to pay their bills, endure expenses, and absorb changes in interest rates, shows Canadians feeling the pinch from high interest rates.
Despite the Bank of Canada cutting interest rates in June for the first time since 2020, 56% of Canadians worry rates won’t fall fast enough to provide the relief they require.
About the same number of respondents said that interest rates would need to drop much lower for their financial situation to improve in any notable way.
“Canadians may have hoped for a more significant cut to interest rates or to experience a quicker impact from the reduction. This leaves many individuals feeling disheartened,” said Grant Bazian, president of MNP.
65% of Canadians said high interest rates have negatively impacted their household finances.
While almost half of those polled, 47%, said that even if interest rates declined, they’d still be concerned with their ability to repay their debts, 34% said they are so indebted that lower interest rates would offer little relief.
Lower-income Canadians were more likely to believe that lower interest rates would not provide relief, with almost three in ten saying their situations were too dire for a rate cut to be of any assistance. 57% of those with an income of $40,000 or less said they would be in financial trouble if interest rates rise.
“Some individuals are living paycheque to paycheque, struggling to make ends meet and cover day-to-day necessities. Others are so deeply indebted that their financial challenges won’t be manageable, regardless of interest rates,” said Bazian.
Business insolvencies previously surged in Canada at rates not seen in 37 years, with consumer insolvencies increasing eight quarters in a row and reaching rates not seen since 2019.
MNP’s index revealed that 62% of those overwhelmed by debt and doubting the effect of lower interest rates were insolvent or on the brink.
“Those struggling with debt often feel overwhelmed by guilt and embarrassment due to the stigma that still surrounds this issue,” said Bazian.
Only 19% of Canadians said they could absorb an additional $100 in interest payments on debt.
Despite this, 32% said they would incur further debt to cover living expenses in the next year. An almost equal 31% regret the amount of debt they’ve taken on in life.
Almost half, 46%, said they were $200 or less away from failing to meet their financial obligations.
Regardless of interest rates, Baizan said the data shows that many Canadian households will need support to manage their debt payments over the following months.
Job security has been weighing on the minds of Canadians as well.
Only 40% don’t worry that they or someone in their household could lose their job.
The future isn’t looking very promising either.
29% of Canadians expect their debt situation to improve within a year. Stretching the timeline to five years, 39% of Canadians expect their debt situation to improve.
When looking at the past instead of the future, 29% of Canadians said that their debt situation is better than it was five years ago. Looking more short-term, 23% have seen their debt situation improve from a year ago.
Only 33% of respondents said they expect no debt in retirement.
Canada’s household debt previously surpassed 100% of GDP, giving the country the third-highest household debt in the world, trailing only Switzerland and Australia and far exceeding any other G7 country.
