Anticipation of interest rate cut sparks optimism
Canadians may be feeling slightly more optimistic about their debt levels, with optimism spurred by the possibility of interest rate reductions, according to insolvency firm MNP.
The latest MNP Consumer Debt Index rebounded eight points to 91, following a year of lower scores. Data showed Canadians are gradually becoming more positive about their debt situations, with 27% of respondents feeling better about their debt than last year, an improvement of 5 percentage points.
Meanwhile, the number of Canadians who think their debt situation has worsened dropped by 6 percentage points to 16%.
This shift in perspective comes amid anticipation of potential interest rate cuts, leading to decreased concern over debt levels (41%, down 6 points) and regret over accumulated debt (44%, down 3 points). Furthermore, many Canadians feel they could handle an interest rate hike of one percentage point (25%, up 3 points) or manage an additional $130 in interest payments (24%, up 5 points).
“The main theme of the latest report is that things are not as bad as they were,” MNP president Grant Bazian said in the report. “Debt perceptions have rebounded from record lows over the last year. Canadians are more confident about their current debt situation, expected debt situation, and ability to absorb interest rate increases. However, Canadian households still feel the squeeze from looming mortgage renewals, pandemic-related financial setbacks, and intensifying cost-of-living pressures.”
Despite increased optimism, debt anxiety remains widespread. Nearly three in five Canadians (58%) remain concerned about their ability to repay debts. Almost half (45%) are within $200 of financial insolvency, with three in ten (31%) already unable to meet their obligations. Over half (54%) fear financial ruin if interest rates rise further.
“Navigating the brink of insolvency or grappling with overwhelming debt burdens is more widespread than many people think,” Bazian said.
Bazian pointed out the social impact of debt stress, with half of Canadians feeling pressure to spend beyond their means on social events. This concern is particularly acute for those aged 18-54 and those already facing financial hardship.
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The survey also reveals a divide in pandemic recovery. While a third of Canadians report improved finances since 2020, an equal proportion are financially worse off. This disparity primarily affects middle-aged and lower-income Canadians.
“Debt is tiresome, draining, and lonely,” Bazian said. “The ongoing cost-of-living crisis, marked by substantial increases in monthly expenses and food prices, and the enduring financial effects of the COVID-19 pandemic are compounding debt hardship even further.”
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