Debt Levels Rise Ahead of Holiday Buying Period
Friday, November 29, 2013
As Canada transitions into the holiday buying season - a period of time in which consumers often see more back payments resulting from buying gifts that their loved ones want for Christmas - debt levels rose slightly in the penultimate quarter of the year.
According to credit agency TransUnion, average consumer debt between July and September rose by $225, totaling approximately $27,350. That's up just under 1 percent on a quarter-over-quarter basis.
At the same time, though, some of the country's most populated metropolitan areas saw consumer debt levels fall. For example, in Toronto, debt dropped from $24,127 to $24,067 and in Vancouver from $40,412 to $40,174. One of the biggest declines observed was in Calgary, sliding from $38,167 to $37,920.
"While we saw a rise in total debt on both a quarterly and yearly basis for the nation, it is a positive sign that Canada's largest metropolitan areas appear to be getting a better handle on their total debt picture," said Thomas Higgins, vice president of analytics and decision services at TransUnion.
He cautioned, however, that based on spending trend data, consumer debt will likely head higher in the fourth quarter, which tends to be the case just about every year due to increased buying behavior stemming from the holidays.
Lines of credit balances slide
But what is another good sign for consumers, Higgins added, is that despite the overall increase in balances - such as for credit cards, installment loans and automotive payments - this wasn't the case for lines of credit. In the past three straight quarters, balances dropped each instance from the previous three-month period.
"This is important because lines of credit make up about 40 percent of all consumer debt, when excluding mortgages," said Higgins.
November is Financial Literacy Month in Canada, which many organizations have observed through employee workshops and campaigns aimed at helping consumers make more of their money, whether they happen to be nearing retirement or have just entered the working world. The Insurance Bureau of Canada has used the past month to make policyholders more aware of how their finances factor into home and car insurance premium assessments.
While there are a variety of ways in which insurance rates are determined, one of the factors that may be used is credit, which debt has an impact on. The IBC has a document that explains how credit information is used and the strict standards that are required. The more favorable one's credit profile is, the lesser insurance rates may be, helping to keep rates affordable whether for home or automotive coverage.
However, policyholders should be advised that if their credit information is used, consent is required from them first. Additionally, customers should not feel obligated to give consent if it's requested from their insurer.
More details about credit and its use as one of the factors in determining rates can be found at IBC's website.