Canadian Credit Card Debt Is on the Rise: 3 Ways to Steer Clear

Forty-three percent of Canadians currently have credit card debt, according to NerdWallet’s 2023 Consumer Credit Card report. Among them, 40% think it will take them six months or longer to pay off all of that debt, and 11% are not at all sure how long it will take them to pay it off.

Like quicksand, it’s easier to get into credit card debt than to climb free. Here are three tips to help you sidestep the debt spiral and stay out of the red.

Average Canadian credit card balance reaches a record high

Canadian credit card debt is at an all-time high, according to a 2022 Equifax survey of 1,006 Canadians conducted using Leger’s online panel. The average Canadian credit card balance was $2,121 at the end of September 2022, according to the study.

Is it a coincidence that Canadian credit card debt rose to new heights alongside record-breaking inflation rates? It’s difficult to say. People use their credit cards for many reasons. But if inflation has amplified the collective burden of credit card debt, it hasn’t worked alone.

Unexpected expenses and unconscious spending fuel credit card debt

Credit card debt can be expensive. It can also be challenging to pay down, especially if you use your credit card as a safety cushion during a financial emergency.

“An event like job loss, illness or injury, or marital breakdown can trigger a debt spiral,” Stacy Yanchuk Oleksy, a certified educator in personal finance and chief executive officer of Credit Counselling Canada, said in an email. “Every day we carry a balance on our credit card, interest is charged. The balance gets hard to pay off, especially if we’re still using the card.”

Of course, unplanned expenses aren’t the only cause of unmanageable debt. Failing to distinguish between wants and needs may contribute to unconscious spending habits.

3 ways to avoid the tailspin of credit card debt

Debt can damage your finances, which is why it’s important to try to avoid accumulating too much of it. Financial experts say embracing cash and knowing the warning signs can help you stay out of the red.

1. Spend your own money.

Using credit can be handy in a pinch, but the more money you borrow, the more you owe. And debt can be a slippery slope — especially when it carries a high-interest rate, like credit card debt does.

“Cut the cards,” Russ Dyck, a fee-only certified financial planner for Alberta-based Finovo, said in an email. “Embrace the simplicity of cash, debit, or prepaid credit cards. By only spending the money you already have, you can regain control and avoid accumulating further debt.”

2. Distinguish between wants and needs.

It’s not always easy to conceptualize your spending habits, but drawing a line between necessary and non-essential spending may help you tighten them up.

“Consider going on a spending fast, focusing solely on essential items like shelter, food and utilities,” Dyck said. “This exercise will empower you to regain control over your spending habits and make deliberate choices.”

Knowing where your money goes every month can help keep you accountable and conscious of your spending patterns.

3. Recognize the warning signs.

Yanchuk Oleksy warns of two red flags that may indicate you’re headed for trouble: using all of your available credit, and using credit to pay credit.

To be clear: these credit card-related actions may be fine if they’re only done occasionally. After all, financial emergencies happen.

But if you frequently bump up against your credit limit or have to borrow money to pay down your credit card balance, it may be time to assess your spending habits. And if you feel like you’re in over your head, get help.

“Reach out to your local non-profit credit counsellor,” Yanchuk Oleksy said.

A conversation with a financial advisor or financial therapist may also help you better understand your options so you can develop a get-out-of-debt plan that works for you.

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