Crush of credit

Credit cards are an invention of the modern age that may have reached a fever pitch of ubiquity.

It’s estimated there are nearly 100 million credit cards active in Canada, and of those, roughly 36 million have rolling balances, based on a recent J.D. Power 2025 Canada Credit Card Satisfaction Study.

It found among cardholders, 36 per cent had balances not paid in full at the end of the month.

The report also notes 58 per cent of credit card customers are now categorized as financially unhealthy, up one percentage point from last year.

“There is definitely trepidation among consumers around their finances,” says John Cabell, managing director of payments intelligence at J.D. Power.

It’s not just Canada. J.D. Power runs the same survey in the United States. There, more than half of card holders have rolling balances.

“There is a more of a focus on the credit and borrowing aspect in the U.S. opposed to Canada where it maybe feels more like a payment method choice,” Cabell says, noting American and Canadians use the credit cards differently.

Simply, more Americans use credit cards to borrow money without paying off the debt at month’s end.

That said, spending is remarkably similar with an average monthly spend of about US$1,058 down south and $1,336 here. Both numbers are down slightly from last year, Cabell says.

Other reports suggest credit card use points to increasing financial strain, including Equifax’s Canada Market Pulse Quarterly Consumer Credit Trends.

It reveals that from April to June, 1.4 million Canadians missed a credit payment. Among those without a mortgage, the rate of delinquency was nearly double. Younger Canadians, it adds, are especially struggling. It also points to credit demand slowing.

All of this suggests, despite consumers appearing resilient as household wealth overall climbs in Canada, according to recent data from a TD Economics report, crushing credit card debt may be a canary in the coal mine of capitalism.

In the U.S., data from the Federal Reserve Bank of New York shows total U.S. debt at more than US$18 trillion, with US$5 trillion non-mortgage debt (often credit card debt), nearly double the levels before the financial crisis in 2008.

A Canada Mortgage and Housing Corp. report shows Canadians owe about $129 billion in credit cards alone. In Manitoba, its residents collectively have a $2.5 billion balance.

Financial professionals are seeing the struggle first hand. Even consumers with strong cash flows can struggle as a result of careless credit card spending, says Ontario certified financial counsellor Jessica Moorhouse.

“Typically, that’s really what’s breaking down their financial well-being,” says Moorhouse, host of the More Money Podcast.

She helps clients make behavioural changes with their spending, using budgeting to find cash flow to save, pay down debt and raise awareness around habits. Yet the demographic she works with often has the cash flow to get themselves in a better position with a few lifestyle changes.

What’s more, credit cards are handy financial tools when used responsibly (i.e. paying the balance in full every month) and almost a requirement for today’s economy.

Yet for the millions of Canadians with balances, they run the risk of eroding their cash flow over time as high-interest credit card debt — generally about 20 per cent per year — persists and even grows.

That’s where licensed insolvency trustees often become involved.

“The trouble we see with cards really ties into inflation going up,” says licensed insolvency trustee Jillian Taylor-Mancusi, managing partner at LCTaylor Licensed Insolvency Trustee in Winnipeg.

“So if your income isn’t increasing, you find money to pay for things your family needs, like groceries, with your credit card.”

She adds it quickly becomes a “vicious cycle” as interest costs eat into purchasing power.

Often clients she works with seek consumer proposals — bankruptcy’s little sibling — whereby they repay about 20 to 30 cents on the dollar of what they owe. That is, so long as creditors accept the terms.

The upside of a proposal is it allows individuals to eliminate credit card debt and keep their home and automobile, she adds.

“But you have to offer something better than they would get in the bankruptcy,” which would often involve creditors getting less than 20 cents on their debt dollar back.

Trustees walk consumers through the options at no charge. “Maybe it’s a consumer proposal, or maybe it’s bankruptcy,” she says.

Sometimes, it’s neither.

Rather, trustees offer education on budgeting to find cash flow to eliminate their debt.

Organizations like Community Financial Counselling Services and Credit Counselling Society in Winnipeg are non-profits that also offer budgeting help and access to debt relief programs. With these, consumers pay back what’s owed, but the interest is often reduced or eliminated.

Most people aren’t in dire credit straits — yet.

Still, they could use their credit cards less to stop the rising tide of red. Moorhouse suggests not reducing a card’s limit or cancelling it. Both can affect your credit score in the future for a mortgage or even consolidation.

“Still, give the card a rest and put it in the freezer — for real or figuratively,” she says.

Focus on accountability. Tracking spending, cut it where you can and seek assistance if needed, Moorhouse says.

“Sometimes, it’s hard not to fall back into old patterns if you don’t have a financial professional to hold you accountable.”

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com