The COVID-19 pandemic worsens the debt situation among Canadians

Editor's Note

This article is sponsored by York Credit Services.

According to a new survey, the number of debt-ridden Canadians has increased in the past few years. This is particularly attributed to the COVID-19 pandemic and its impact on Canada’s economy. The report dubbed the 2021 BDO Affordability Index has shown how the pandemic has resulted in a diminished quality of life for Canadians. “What’s more unfortunate is that many of those affected have no knowledge on how to improve their situation,” says Artem Avvakoumov, debt consolidation adviser at York Credit Services. With the rising cost of living, most people will sink into further debt trying to make ends meet. Among the key findings is that 43 per cent of Canadians who are already in debt are incurring more debt due to the pandemic. This number has increased by four per cent compared to last year.

Rising costs of living make it harder for Canadians to save

With the COVID-19 pandemic hitting hardest in early 2020, there has been a severe decline in almost all types of economic activity, not just in Canada but throughout the world. Many Canadians are forced into further debt, which only makes their standard of living worse. What’s more concerning is that most people lack the confidence that they will be able to restore their standard of living even after the pandemic is over.

Two main factors that have impacted reduced savings among Canadians after the pandemic are job loss and reduced income. In the survey, 57 per cent of Canadians said that their reason for saving less after the pandemic is because they’re now spending more on essentials like groceries and housing. More than half of the participants attributed their reduced savings to a lack of income. With many companies laying off workers and issuing salary cuts after the pandemic, the decline in savings comes as no surprise.

Two different Canadas exist

The financial situation is different among the “haves” and “have-nots” in Canada. Generally, Canadians who generate incomes above $100,000 seem to be feeling less pressure from the rising costs of living after COVID-19. This group of Canadians, which also consists of British Columbians and those with university education, continues to enjoy increased saving opportunities, unlike the families with lower incomes who do not see the light at the end of the tunnel.

Regarding savings, four in 10 Canadians are saving less or not at all, whereas three in 10 are saving more. Out of those saving less or not at all since the beginning of the pandemic, 45 per cent are women, and 48 per cent are between the ages of 35 to 54. 50 per cent of those saving less are Atlantic Canadians. On the flip side, 28 per cent of the Canadians who managed to save more only did so because of the reduced spending on non-essentials and not due to increased income.

Overspending not a major factor for increased debt among Canadians

This year only 15 per cent of Canadians whose debt is increasing gave overspending as the reason. This is a decline compared to last year, as 70 per cent of Canadians blame the rising cost of living for the increased debt loads. According to the credit counsellors at York Credit Services, many Canadians can get expert advice to reduce their debt instead of seeking more credit during these tough economic times. Many people are turning to debt help because they are simply unaware of the many solutions available to them.

In fact, the survey showed that most Canadians who are incurring new types of credit post-pandemic are getting into credit card debt. In fact, one in 12 Canadians carries credit card debt that they didn’t have pre-pandemic. The downsides of credit card debt include high interest and hefty fees, negative impact on credit scores and long-term consequences such as bankruptcy if the debt gets out of control. With the help of experts at York Credit Services, Canadians who are affected by the increased cost of living can get educated on alternative solutions to better manage their income and get out of debt.

Significant reduction in non-essential spending

The survey also highlighted lower spending on non-essential activities such as entertainment, vacations, and impulse purchases. 64 per cent of Canadians reworked their budgets to reduce the amount they spend on non-essentials like vacations in order to prioritize more on essentials and saving for emergencies. Many of those affected by the increased standard of living sought out solutions to reduce their debt. These include applying for government benefits, finding a new job, or getting a second job to supplement their existing income.

Fewer Canadians can afford to save for retirement

Sixty per cent of Canadians are having trouble saving for retirement as a result of the COVID-19 pandemic. Even though 78 per cent of Canadians between the ages of 55 and older say they are current on their retirement savings, three in 10 say they are not on track to retire, which is quite concerning.

“Unfortunately, many Canadians are not aware of the retirement plan options available to them even during periods of reduced incomes,” says Avvakoumov.

York Credit Services has helped Canadians explore retirement plans while reducing their debt levels even in tough economic times. Many people approaching retirement are not aware of tax-free savings accounts and disability savings plans that they can take advantage of to secure their financial future after retirement. Consider speaking with a debt consolidation adviser on matters retirement to help you decide on which products best meet your needs.

Pandemic brings affordability barriers in homeownership

Forty-five per cent of Canadians are facing challenges meeting their housing costs months after the pandemic hit. This is a seven per cent increase compared to last year. With increased housing costs and higher costs of living, many of these Canadians have had to put off their dream of homeownership. In fact, the number of new homeowners is expected to decline months after the pandemic, with 74 per cent of Canadians between the ages of 35-54 saying that they are unlikely to buy a home in the next three years. 48 per cent of Canadians in all age groups who are unlikely to buy a home in the next 3 years claim that it’s because they haven’t saved enough for the down payment.

Canadians can benefit from paying off their credit card debts

Paying off your credit card debts first, especially those with high-interest rates, can create room to save more by getting rid of larger payments one at a time. Most people try to apply for mortgages with too much consumer debt, which makes it harder for them to qualify for the house they want. By paying down your credit card debts first, you’re more likely to qualify for a mortgage and fulfill your homeownership dream regardless of the post-pandemic economic challenges Canadians are facing.

Now more Canadians dependent on government benefits

Months after the pandemic, three in 10 Canadians relied on government benefits to maintain their standard of living. 76 per cent of the Canadians taking advantage of government benefits stated that they were “very important” or “essential” in their day-to-day lives. In fact, 65 per cent of those who received government benefits say that they are not confident that they would be able to maintain their standard of living once the benefits stopped coming in.

More Canadians now saving for an emergency fund

The survey also highlighted that about 60 per cent of Canadians are now prioritizing saving for an emergency fund. This situation is different among the “have” and “have-nots.” While Canadians making less than $50,000 are saving for their emergency fund, those with higher incomes are prioritizing retirement and major purchases like buying a home. 62 per cent of Canadians making more than $100,000 are saving for retirement and major purchases.

More Canadians will begin spending on non-essentials like travel and restaurants with easing restrictions across the country. As an expert adviser at York Credit Services, Avvakoumov continues to stress the importance of getting out of debt and sticking to a reasonable budget in order to remain on track with your financial goals. “We encourage anyone who is currently experiencing financial challenges, especially when it comes to paying down debt, to speak with a trusted financial adviser who will explain the full range of debt relief options available."

How can a debt consolidation adviser help?

For Canadians who need help to get their finances in shape post-pandemic, a debt consolidation adviser can provide a range of services they might need. “At York Credit Services, we’ve met many clients who are overwhelmed with debt and simply need an expert to help them plan for a healthy financial future,” says the company’s debt consolidation adviser. These experts allow their clients to understand their cash flow and instantly identify existing problem areas by working out a proper budget. For the financial adviser to get a full picture of their client’s situation, one is required to bring in relevant documents such as bank statements, credit card bills, pay stubs and tax returns for at least 6 months or a few years.

A proper budget which covers the essentials without adding more debt could be a great place to start. Another service that is very key for clients facing financial challenges after the pandemic involves analyzing and restructuring existing debt. “Credit card debt is downright toxic since it has high-interest rates and generally attracts additional penalty fees which can easily get out of hand,” he adds. “Our experts analyze the debt held by each client, and then we identify ways to prioritize on their payback strategy so that those expensive accounts like credit card balances go out first and the more modest ones like mortgages remain at the bottom."

About York Credit Services

Do you have bad credit? Are you constantly struggling to pay off your bills? If you answered yes to any of these questions, Canada’s debt relief experts at York Credit Services are ready to help. As debt counselling specialists, they offer practical solutions for all kinds of financial problems. From credit card debt to budgeting and filing for bankruptcy, you will get access to financial solutions that help you improve your credit score and get off debt fast. Clients who commit fully to the process no matter how big their debt is can get tailored solutions to completely transform their financial position. “Our credit counselling services don’t have an overnight effect.

“We encourage our clients to take part in a long-term process that demands commitment in order to get the best results,” says Avvakoumov. “We will perform a financial assessment to fully understand the client’s financial status and then come up with a solution that is practical and customized for you." When seeking debt relief services, clients are advised to be open and disclose all the requested information even when it sometimes feels like an invasion of privacy in order to get the best solution for their needs. York Credit Services has friendly credit counsellors to walk with you at every step of this journey.