According to BMO’s Annual Debt Report released today, almost two-thirds of Canadians with debt (64 per cent) would be stressed in the event interest rates rose two percentage points, with one-quarter (25 per cent) saying they would be very stressed.
Meanwhile, there is optimism among Canadians regarding the pace at which they can pay their debt down and there remains an appetite for taking on more debt in the next year.
The annual poll, conducted by Pollara, revealed:
The average household debt in Canada is $92,699, trending slightly above the four year average of $88,303 dating back to 2012 when the annual polling began.
While almost half of Canadians (46 per cent) feel some stress about their current debt load, the percentage is lower compared with the past two years (54 per cent in 2014, and 57 per cent in 2013).
The majority (59 per cent) believe they will pay off their current debt in five years or less.
However, 46 per cent of those with debt plan to take on more debt in the coming year.
“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” noted Sal Guatieri, Senior Economist, BMO Capital Markets. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”
“Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt,” said Christine Canning, Head, Everyday Banking, BMO Bank of Montreal. “That said, rates will inevitably rise to normal levels, so it’s becoming increasingly important that Canadians stress-test their ability to afford the debt they currently have so they can effectively manage their finances in a higher rate environment.”
Ms. Canning added that managing debt is a simple concept but can be much more challenging in practice. Working with a financial planner to help assess your spending patterns and determine priorities, such as paying down debt and saving for other goals, can make the process easier. Additionally, she noted that the BMO Savings Builder Account can help Canadians get into the habit of prioritizing savings versus paying down debt. The account offers bonus interest for customers who make recurring monthly savings contributions.