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HOUSEHOLD DEBT-TO-INCOME RATIO (DTI) CLIMBS ALONG WITH NET WORTH : OUR COMPLETE GUIDE ON CANADA’S ECONOMIC ILLUSION

Canadian families balanced on a see-saw between rising household net worth and a contracting economy in a city skyline, illustrating how DTI (debt-to-income) ratios, equity markets, and saving rates impact financial stability in Canada.

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DTI Key Takeaways

  • Paradoxical Q2 and Q3 2025: Statistics Canada’s December 11, 2025, release reveals a confusing economic picture for Q2 and Q3 2025: a contracting national economy alongside a significant rise in household net worth.
  • Market-Driven Wealth: The increase in household net worth is largely attributed to strong equity market performance, creating “paper wealth” through asset appreciation, rather than widespread income growth. This wealth is often concentrated.
  • Rising DTI (Debt-to-Income Ratio): Despite increased net worth, Canadian households saw their aggregate DTI climb, indicating that debt is growing faster than income. A higher DTI signals increased financial fragility.
  • Dipping Savings Rates: Concurrently, household saving rates declined, reducing the financial buffer available for emergencies or future investments and highlighting a reliance on borrowing.
  • Implications for Consumers (2026): Canadians face a precarious balance. Prudent personal finance, debt reduction, and building emergency funds become critical. The lending landscape may tighten as a result of elevated DTI.
  • Challenges for Businesses (2026): Entrepreneurs and companies must navigate shifting consumer spending power, potentially tighter access to capital, and adapt business models to focus on value and essential services in a more cautious economic climate.
  • Strategic Caution: The overall message for 2026 is one of vigilance. While headline net worth looks robust, the underlying metrics, DTI and savings suggest a need for strategic planning, financial resilience, and prudent decision-making across all sectors.

According to Statistics Canada, household debt levels climbed again in the third quarter of 2025. The numbers show that for every dollar of disposable income Canadians earned, they carried about $1.77 in mortgages, credit cards, and other loans. Put simply, debt is now almost twice as large as the income households have available to spend or save.

Introduction: The Paradox at the Heart of the Canadian Economy

Imagine a situation where the national economy is shrinking, yet the financial worth of its citizens is on the rise. Sounds contradictory, doesn’t it? This is precisely the surprising headline expected from Statistics Canada’s December 11, 2025 release, detailing the National balance sheet and financial flow accounts for the second quarter of 2025. The report is set to reveal a significant increase in Canadian household net worth, painting a seemingly rosy picture of financial health.

However, beneath this surface glow, deeper metrics tell a more cautious story. The same report is anticipated to highlight less optimistic trends: a notable increase in household DTI (debt-to-income) ratios and a dip in saving rates. This immediate contradiction begs the question: how can Canadians be getting “richer” on paper while simultaneously taking on more debt and saving less?

This Brandon’s Blog post will dive deep into these figures, dissecting the StatsCan report to unpack what these seemingly conflicting trends truly mean. We’ll explore the drivers behind the surge in net worth, shine a critical light on the often-overlooked implications of a rising DTI, and understand why a falling saving rate is a cause for concern. More importantly, we’ll draw crucial conclusions, offering actionable insights for Canadian consumers, entrepreneurs, and companies as they navigate the complexities of 2026. This is essential reading for anyone with a stake in Canada’s economic future, seeking clarity amidst the paradox.Infographic showing Canada's economy: Net worth up, economy contracted with rising household debt to income (DTI) & its 2026 impact on consumers & businesses.

The Numbers Speak: Canada’s Q3 2025 Financial Snapshot (StatsCan December 11, 2025 Release)

The National balance sheet and financial flow accounts, released quarterly by Statistics Canada, are far more than just a collection of dry figures. They serve as a vital economic barometer, providing a comprehensive look at the financial health of Canadian households, non-profit organizations, corporations, and governments. By tracking assets, liabilities, and financial transactions, these reports offer invaluable insights into wealth accumulation, borrowing patterns, and investment behaviour – essentially, the financial pulse of the nation. The December 11, 2025, release is particularly noteworthy for its contradictory findings.

A Tale of Two Economies: National Contraction vs. Household Gains

The overarching narrative from the report will point to a contracting national economy. This typically signifies a slowdown in overall economic activity, often characterized by reduced GDP growth, potentially softer job markets, and a general tightening of economic conditions across various sectors. Such a contraction usually triggers concerns about recessionary pressures and the broader economic outlook.

Yet, in stark contrast to this contracting national picture, the report details an increase in aggregate household net worth. This figure, representing the total value of assets owned by households minus their liabilities (debts), can initially generate a sense of optimism. On the surface, it suggests Canadians are financially stronger, seemingly defying the broader economic headwinds. This immediate juxtaposition is where the core paradox lies, and it demands a closer, more nuanced examination to understand the true state of Canadian financial well-being.

Key Highlights from the National Balance Sheet

The primary driver behind the reported increase in household net worth is market-driven asset appreciation. This typically refers to the rising value of investments such as stocks, mutual funds, and other financial instruments held by households. When equity markets perform strongly, the value of these assets increases, directly boosting household net worth on paper, even if no new savings or income have been added. Other notable figures from the release, which we’ll delve into shortly, include the concerning trends of rising household DTI ratios and a dip in personal saving rates, setting the stage for a deeper analysis beyond the headline net worth figure.

Unpacking the Household Net Worth Surge: A Closer Look

While a rising household net worth sounds universally positive, it’s crucial to look beyond the surface number. “Household net worth” is a broad measure, and its increase doesn’t always translate directly into widespread, tangible prosperity for all Canadians. Understanding its composition and distribution is key to interpreting its true meaning.

The Equity Market Engine: Driving “Paper Wealth”

The primary engine behind the net worth surge is anticipated to be the strong performance of equity markets. This means that investments in stocks, mutual funds, and other market-linked assets have seen significant value appreciation. For households holding these assets, their wealth has increased on paper. This phenomenon is often referred to as “paper wealth” because it represents unrealized gains – the wealth exists as long as market valuations hold, but it hasn’t been converted into cash until assets are sold.

This market-driven appreciation can lead to what economists call the “wealth effect.” When people see their investment portfolios or home values rise, they often feel richer and more confident about their financial situation. This increased confidence can, in turn, lead to greater spending, despite their actual disposable income not having changed. While the wealth effect can stimulate economic activity, its foundations are often tied to market sentiment and performance, which can be volatile.

A critical point here is the concentration of this wealth. Equity market gains disproportionately benefit higher-income households, who typically hold a larger share of financial assets and investments. For many middle and lower-income Canadians, whose primary assets might be their home or defined-benefit pensions, the immediate impact of surging stock markets on their daily financial reality can be minimal. This means that while aggregate net worth rises, the benefits may not be evenly distributed, potentially widening the wealth gap rather than reflecting broad-based prosperity.

Beyond the Headlines: Is This Wealth Sustainable?

The reliance on market performance to drive net worth raises critical questions about its sustainability, especially within the context of a contracting national economy. If the increase in net worth is predominantly a function of rising asset prices rather than fundamental economic growth, real wage increases, or increased savings, its stability could be precarious.

Consider the potential vulnerabilities:

  • Market Corrections: Equity markets are inherently cyclical. What goes up can come down. A significant market correction could quickly erode these “paper gains,” potentially leading to a rapid decline in household net worth.
  • Economic Disconnect: When financial markets surge while the real economy (measured by GDP, employment, and business activity) contracts, it suggests a disconnect. This divergence can signal an economy propped up by financial speculation rather than robust underlying fundamentals.
  • Interest Rate Sensitivity: The current interest rate environment plays a significant role. If rates continue to rise, it could put downward pressure on asset valuations (as higher rates typically reduce the present value of future earnings) and make borrowing more expensive, impacting both asset values and debt servicing costs.

For households with significant exposure to equities, while their net worth may look impressive on paper, they could be vulnerable to sudden shifts in market sentiment. This situation underscores the importance of a diversified financial strategy and a clear understanding that not all wealth is created equal, particularly when juxtaposed against other concerning financial indicators.household debt to income ratio dti

The Elephant in the Room: Canada’s Rising DTI and Dipping Savings

While the headline net worth figures might offer a fleeting sense of comfort, the StatsCan report’s deeper dive into household finances reveals a counter-narrative that demands serious attention: increasing DTI, ratios and declining saving rates. These are the less glamorous, but ultimately more telling, indicators of financial stability.

What is DTI, and Why is it Critically Important for Canadians?

The DTI is a financial metric that stands for Debt-to-Income Ratio. In simple terms, it compares how much money a person or household owes in debt payments each month to how much gross income they earn each month. It’s usually expressed as a percentage.

How is DTI calculated?

  • Total Monthly Debt Payments: This includes all recurring debt obligations such as mortgage payments (principal and interest), car loans, student loan payments, minimum credit card payments, and any other regular loan payments.
  • Gross Monthly Income: This is the total income before taxes and other deductions.

Formula: (Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI (%)

Why DTI Matters:

The DTI is a critical indicator for several reasons:

  1. Financial Health: A high DTI suggests that a large portion of one’s income is already committed to debt servicing. This leaves less money for essential living expenses, savings, or discretionary spending, making a household financially vulnerable.
  2. Creditworthiness: Lenders use DTI as a key factor in assessing credit risk. A lower DTI indicates that a borrower has more disposable income to manage new debt, making them a more attractive candidate for loans and mortgages.
  3. Ability to Absorb Shocks: Households with a high DTI have less flexibility to absorb unexpected financial shocks, such as job loss, illness, or sudden large expenses. They have little room to manoeuvre if their income decreases or their expenses rise.
  4. Lending Decisions: Most lenders have strict DTI limits. For instance, mortgage lenders often look for a total DTI (including the new mortgage payment) of no more than 40-44%. If a borrower’s DTI is too high, they may be denied credit or offered less favourable terms.

Healthy vs. Unhealthy DTI:

While benchmarks can vary by lender and financial institution, a general guide is:

DTI Range

Interpretation

Below 36%

Excellent:

Manageable debt, strong financial health. Ideal for lenders.

36% – 43%

Good:

Generally acceptable, but approaching limits for some loans.

44% – 50%

Risky:

May face challenges qualifying for new loans; high financial burden.

Above 50%

Critical:

Significant debt burden, very limited financial flexibility.

Understanding your personal DTI is a foundational step towards managing your financial well-being.

Canadian DTI Trends: A Historical Context and Q2 and Q3 2025 Update

Canadian households have a long history of accumulating debt, particularly mortgage debt, due to rising housing prices. Over the past few decades, the aggregate household DTI has generally been on an upward trajectory, interrupted only by brief periods of deleveraging or economic slowdowns. Concerns about elevated household debt levels have been a recurring theme for economists and policymakers for years.

The Q3 2025 StatsCan report confirms a further increase in the aggregate household DTI ratio to almost 177%. The trend suggests that household debt is growing at a faster pace than disposable income. This upward movement is particularly concerning when juxtaposed with a contracting national economy, as it implies households are becoming more reliant on borrowing even as economic conditions weaken.

Several factors contribute to this rise:

  • Persistent Inflation and Cost of Living: Even with a contracting economy, persistent inflation in essential goods and services (groceries, utilities) can push households to borrow more to maintain their standard of living.
  • Higher Interest Rate Environment: While interest rates directly impact debt servicing costs, the aggregate DTI measures the ratio of debt payments to income. If rates rise, the payment portion of the DTI increases, even if the principal debt amount remains constant or grows slowly. This makes existing debt more expensive to carry, consuming a larger share of income.
  • Consumption Patterns: Despite economic uncertainties, some households may continue pre-pandemic consumption patterns, funded through credit, or face unavoidable expenses that necessitate borrowing.
  • Housing Market Dynamics: While the pace might have slowed, the high cost of housing and related borrowing continue to be a significant driver of overall household debt.

A rising DTI makes the Canadian financial system more vulnerable. It means that more households are stretched thin, with less capacity to manage financial shocks or unexpected expenses.

The Savings Squeeze: Living for Today, Borrowing for Tomorrow?

Adding to the complexity, the StatsCan report also details a dip in the household saving rate. The saving rate measures the proportion of disposable income that households save, rather than spend or use to pay down debt.

The implications of lower savings are significant:

  • Reduced Financial Resilience: Savings act as a crucial buffer against unforeseen events like job loss, medical emergencies, or home repairs. A lower saving rate means households have less of a safety net, making them more susceptible to financial distress.
  • Impaired Retirement Planning: Consistent savings are fundamental for long-term financial goals, including retirement. A sustained dip in saving rates can compromise future financial security for many Canadians.
  • Limited Investment Capacity: Lower savings mean less capital available for personal investments, which can contribute to wealth building and economic growth.

Several factors could be contributing to this savings squeeze:

  • Inflationary Pressures: The rising cost of living compels households to allocate a larger portion of their income to essential expenses, leaving less for savings.
  • Higher Debt Servicing Costs: As interest rates rise and DTI increases, a greater share of income must be dedicated to servicing existing debt, directly reducing the amount available for saving.
  • Post-Pandemic Spending: After periods of restricted spending during the pandemic, some households might have increased consumption, drawing down accumulated savings or delaying new savings.
  • Income Stagnation: If real incomes are not keeping pace with inflation and rising expenses, households may find it increasingly difficult to save.

Taken together, the rising DTI and dipping saving rates paint a picture of Canadian households becoming more leveraged and less resilient, despite the headline boost in net worth. This situation poses a considerable challenge for individuals, businesses, and policymakers alike as they look towards 2026.Infographic showing Canada's economy: Net worth up, economy contracted with rising household debt to income (DTI) & its 2026 impact on consumers & businesses.

Reconciling the Paradox: Wealth on Paper, Pressure on Wallets

The Q3 2025 StatsCan report presents a challenging puzzle: how can Canada’s household net worth increase significantly while the national economy contracts, and individual households face rising DTI and falling savings? Reconciling these seemingly contradictory data points is crucial to understanding the true state of Canada’s economic health.

The Disconnect: Market Performance vs. Underlying Economic Strength

The primary explanation for this paradox lies in the fundamental disconnect between financial market performance and underlying economic strength. Stock markets, which are a major driver of “paper wealth” through asset appreciation, can often operate independently of the real economy.

  • Financial Markets as Forward-Looking: Equity markets are often forward-looking, anticipating future earnings and economic conditions. Sometimes, they can be fuelled by optimism, speculative activity, or the performance of a few dominant sectors, even if the broader economy is struggling.
  • Real Economy lags: The “real economy” – measured by GDP, employment rates, wage growth, and business investment – often moves at a different pace. A contracting real economy indicates a slowdown in actual production, consumption, and job creation.
  • Interest Rate Environment: Policy interest rates can also influence this divergence. Central bank actions, aimed at controlling inflation or stimulating growth, can have immediate impacts on financial asset valuations (e.g., lower rates making equities more attractive) while their effects on the broader economy take longer to materialize.

This divergence can create an illusion of widespread prosperity when, in reality, the gains are concentrated and potentially volatile. It means that the rising net worth might not be a robust indicator of broad-based economic health, but rather a reflection of specific financial market dynamics.

This phenomenon is often described as a “K-shaped economy” or “K-shaped recovery.” In a K-shaped scenario, different segments of the economy and population experience vastly different outcomes. Some groups (the upper arm of the ‘K’) thrive, often those with significant financial assets, benefiting from market booms. Meanwhile, others (the lower arm of the ‘K’) struggle, perhaps facing job losses, stagnant wages, or increased debt burdens. The StatsCan Q2 and Q3 2025 data strongly hints at such a K-shaped distribution, where the aggregate net worth rises due to gains at the top, while the average Canadian experiences increased financial pressure.

Who Benefits? Dissecting the Distribution of Wealth and Debt

The aggregate figures for net worth, DTIDTI, and savings often mask significant disparities among Canadian households. The benefits of rising net worth are rarely evenly distributed.

  • Concentration of Wealth: As mentioned, those with substantial investments in stocks, mutual funds, and other financial assets are the primary beneficiaries of equity market booms. These tend to be higher-income households. For many middle- and lower-income families, their primary “wealth” is often tied up in their home, and they may have fewer liquid financial assets to benefit from market rallies.
  • Uneven Distribution of Debt: Conversely, the burden of rising debt and high DTIDTI ratios often falls disproportionately on younger Canadians, first-time homebuyers, and lower-to-middle-income households. These groups may have taken on significant mortgage debt at high prices, carry higher-interest consumer debt, or have experienced less robust income growth.
  • Home Equity vs. Liquid Wealth: A significant portion of Canadian household net worth is tied up in home equity. While a rising home value increases net worth on paper, this “wealth” is often illiquid – it can’t be easily accessed without selling the home or taking on more debt (e.g., through a home equity line of credit). This means that while net worth looks good, many households might not have readily accessible funds to cover emergencies or maintain their lifestyles without further borrowing. This lack of liquid wealth, coupled with increasing DTI, creates a vulnerable financial landscape for many.

In essence, the Q3 2025 report suggests a narrative where a segment of the population is enjoying market-driven wealth appreciation, while a broader swathe of Canadians is grappling with the pressures of rising debt and shrinking financial buffers. This divergence creates a complex and potentially fragile economic environment for 2026.household debt to income ratio dti

Implications for Canadian Consumers in 2026: Navigating the New Reality

For the average Canadian consumer, the mixed signals from the Q3 2025 StatsCan report demand careful consideration. Navigating 2026 will require a proactive and informed approach to personal finance.

Personal Finance Strategies: Budgeting, Debt Reduction, and Emergency Funds

In an environment characterized by a high aggregate DTIDTI and low saving rates, a robust personal finance strategy is no longer optional; it’s essential.

  • Aggressive Debt Repayment: Prioritize paying down high-interest debt, such as credit card balances and personal lines of credit. Even if overall net worth is up, high-interest debt eats away at disposable income and financial flexibility. Consider strategies like the debt snowball or debt avalanche methods.
  • Re-evaluating Budgets: With persistent inflation and potentially stagnant real incomes, a thorough review of household budgets is critical. Identify areas where expenses can be reduced to free up funds for debt repayment or savings. Differentiate between needs and wants.
  • Prioritizing Emergency Savings: The dip in saving rates is a significant red flag. Aim to build or replenish an emergency fund covering at least three to six months of essential living expenses. This fund provides a crucial buffer against unexpected job loss, health issues, or other financial shocks.
  • Understanding Your Own DTI: Every individual should know their personal DTI. Regularly calculate it to monitor your financial health. If it’s high, focus on increasing income or, more realistically, reducing debt payments. Tools like online calculators or financial advisors can help. A lower DTI improves credit scores and opens doors to better lending rates.

The Mortgage and Lending Landscape: What Rising DTI Means for Borrowers

The aggregate increase in household DTI will undoubtedly influence the mortgage and broader lending landscape in 2026. Lenders are inherently risk-averse, and a national trend of higher debt relative to income signals increased risk.

  • Stricter Qualification Criteria: Banks and other financial institutions may tighten their lending criteria. This could mean higher minimum credit scores, more stringent income verification, and potentially lower maximum DTI thresholds for loan approvals, particularly for mortgages and large personal loans.
  • Impact on First-Time Homebuyers: For those looking to enter the housing market, a higher national DTI could make it more challenging to qualify for mortgages, especially if interest rates remain elevated. They might need larger down payments or demonstrate exceptionally strong income stability.
  • Refinancing Challenges: Existing homeowners looking to refinance their mortgages or access home equity lines of credit might also face stricter scrutiny. Their current DTI will be a significant factor, and higher rates could make refinancing less attractive or even unfeasible.
  • Increased Scrutiny on Debt Servicing: Lenders will place an even greater emphasis on an applicant’s ability to service existing debt, making a clean credit history and a manageable DTI more important than ever.

Consumer Confidence and Spending Habits: A Precarious Balance

The mixed economic signals create a precarious balance for consumer confidence and, consequently, spending habits.

  • Cautious Spending: While some may feel wealthier due to asset appreciation, the underlying pressures of high DTI and low savings are likely to foster a more cautious mindset among the majority of consumers. This could lead to a reduction in discretionary spending on non-essential goods and services.
  • Shift Towards Value: Consumers may increasingly seek out value-oriented products and services, prioritizing necessity over luxury. Bargain hunting, sales, and a focus on durability are likely to become more prevalent.
  • Impact on Certain Sectors: Sectors heavily reliant on discretionary spending (e.g., luxury retail, high-end travel, fine dining) could experience a slowdown, while essential services, discount retailers, and financial advisory services (especially those focused on debt management) might see increased demand.
  • Economic Uncertainty: The contracting national economy, coupled with global uncertainties, will likely keep consumer confidence subdued, leading to a “wait-and-see” approach for major purchases or investments.

For Canadian consumers, 2026 will be a year to embrace financial prudence, resilience, and strategic planning.

What This Means for Canadian Entrepreneurs and SMEs in 2026

Small and Medium-sized Enterprises (SMEs) are the backbone of the Canadian economy, and they will feel the ripple effects of these complex financial trends directly. Entrepreneurs must be agile and strategic to thrive in 2026.

Understanding Consumer Spending Power and Risk Appetite

Entrepreneurs need to keenly interpret the nuanced consumer data revealed by StatsCan to inform their business planning.

  • Divergent Spending Patterns: Recognize that consumer spending power is likely to be uneven. While some higher-net-worth households may continue spending, a larger segment of consumers grappling with high DTI and low savings will be more cautious. Businesses should avoid assuming broad-based consumer affluence.
  • Demand for Value and Essentials: Businesses that offer strong value propositions, essential goods and services, or solutions that help consumers manage their finances (e.g., budget-friendly alternatives, repair services over new purchases, financial planning) are likely to be more resilient.
  • Reduced Discretionary Spending: Businesses in discretionary sectors will need to prepare for potentially reduced demand. This might necessitate marketing shifts, product line adjustments, or a renewed focus on customer retention through exceptional service.
  • Reluctance to Take on New Debt for Purchases: Consumers with high personal DTI are less likely to finance large purchases or take on new credit for non-essential items, directly impacting businesses selling big-ticket goods or services.

Access to Capital and Lending Conditions for Businesses

The elevated aggregate household DTI and broader economic contraction can influence the lending environment for SMEs.

  • Tighter Credit Conditions: Financial institutions, facing increased systemic risk from household debt, may become more cautious in their lending to businesses as well. This could mean higher interest rates, stricter collateral requirements, or more rigorous financial scrutiny for SME loan applications.
  • Emphasis on Strong Financials: Entrepreneurs seeking capital will need to present an even stronger case, demonstrating robust cash flow, a solid business plan, a clear path to profitability, and potentially more personal capital injection to de-risk the loan.
  • Alternative Financing: SMEs might need to explore alternative financing options beyond traditional bank loans, such as government grants, venture capital (for scalable businesses), or crowdfunding, though these also come with their own sets of challenges and requirements.
  • Managing Existing Debt: Businesses with existing debt should review their terms and proactively manage their obligations, especially if interest rates continue to climb. Strong cash flow management becomes paramount.

Opportunity in Uncertainty: Adapting Business Models

Despite the challenges, periods of economic uncertainty can also create unique opportunities for adaptable and innovative entrepreneurs.

  • Innovation in Value Delivery: Businesses that can innovate to provide more cost-effective solutions or higher perceived value for the consumer dollar will gain a competitive edge. This could involve process improvements, supply chain optimization, or creative pricing models.
  • Focus on Essential Services: Expanding into or fortifying offerings in essential services, repair, maintenance, or financial advisory (e.g., budgeting tools, debt consolidation advice) can tap into resilient demand.
  • Digital Transformation: Leveraging digital tools for efficiency, customer outreach, and e-commerce can help businesses reach a wider audience and reduce overhead, critical in a tighter economic climate.
  • Niche Market Focus: Identifying and serving niche markets with specific, unmet needs (e.g., sustainable and affordable products, personalized services that save time or money) can provide resilience against broader economic downturns.
  • Contingency Planning: Building robust financial models, establishing strong cash reserves, and developing clear contingency plans for various economic scenarios (e.g., reduced sales, supply chain disruptions) are vital for long-term survival.

Entrepreneurs in 2026 must lead with prudence, agility, and a deep understanding of evolving consumer behaviour and financial market realities.Infographic showing Canada's economy: Net worth up, economy contracted with rising household debt to income (DTI) & its 2026 impact on consumers & businesses.

Strategic Outlook for Canadian Companies in 2026

Larger Canadian companies, with broader market reach and significant investment capabilities, also face a complex landscape in 2026. Strategic decisions regarding investment, risk management, and workforce planning will be critical.

Investment Decisions and Capital Allocation

The contracting national economy, coupled with high household DTI will influence how companies approach investment and capital allocation.

  • Cautious Expansion: Companies may adopt a more conservative approach to major capital expenditures, R&D, and expansion plans. Investment decisions will likely undergo heightened scrutiny, prioritizing projects with clear and immediate returns on investment.
  • Focus on Efficiency: Investments aimed at improving operational efficiency, reducing costs, and streamlining processes will likely take precedence. This could involve adopting automation, optimizing supply chains, or investing in energy-saving technologies.
  • Maintaining Liquidity: In an uncertain economic environment, maintaining strong liquidity and a healthy balance sheet will be paramount. Companies may choose to hoard cash or pay down existing debt rather than embarking on aggressive growth initiatives.
  • Strategic M&A: Opportunistic mergers and acquisitions could occur, especially if smaller, less resilient businesses become available at attractive valuations. However, even these deals will face rigorous due diligence.

Managing Risk in a Fluctuating Economic Environment

The confluence of a contracting economy, elevated household DTI, and global uncertainties significantly raises the risk profile for Canadian companies.

  • Credit Risk from Consumers: Companies that rely on consumer credit or offer financing (e.g., automotive, retail) will need to closely monitor their credit risk exposure, as a higher aggregate DTI suggests an increased likelihood of defaults or delayed payments.
  • Supply Chain Vulnerabilities: Ongoing geopolitical tensions and potential disruptions can continue to pose risks to global supply chains. Companies should invest in diversification, resilience planning, and near-shoring strategies where feasible.
  • Market Volatility: The market-driven nature of net worth gains suggests financial markets could remain volatile. Companies with significant financial investments or pension liabilities will need robust hedging strategies.
  • Forecasting Challenges: Economic forecasting becomes more challenging in a mixed-signal environment. Companies need dynamic forecasting models and adaptable strategies to respond to rapidly changing market conditions.
  • Cybersecurity Risks: As economic pressures mount, cybersecurity threats can also increase, requiring continuous investment in robust protective measures.

Workforce Planning and Consumer Demand Shifts

Changes in consumer spending patterns and a potential economic slowdown will have direct implications for workforce planning and human resources.

  • Moderated Hiring: Companies may slow the pace of hiring or implement targeted hiring freezes, especially in sectors experiencing reduced consumer demand. Growth in employment might be modest.
  • Talent Retention: Despite potential slowdowns, retaining key talent will remain crucial. Companies might focus on non-monetary benefits, professional development, and fostering a positive work environment to maintain their workforce.
  • Skill Gaps: The need for efficiency and digital transformation could lead to shifts in required skills, necessitating investments in reskilling and upskilling programs for the existing workforce.
  • Impact on Different Sectors: Companies in discretionary goods and services will likely face greater pressure on their workforce than those in essential services, healthcare, or utilities. Resource allocation and restructuring may be necessary in some sectors.
  • Productivity Focus: With potential wage pressures and a cautious economic outlook, companies will increasingly focus on improving workforce productivity through technology, training, and optimized processes.

For Canadian corporations, 2026 calls for a strategic approach that balances prudent risk management with selective, high-impact investments, ensuring resilience and adaptability in a complex economic climate.

Preparing for 2026: Recommendations and Forward-Looking Strategies

The StatsCan report serves as a crucial wake-up call, emphasizing the need for proactive measures across all economic stakeholders. Preparing for 2026 requires a consolidated strategy focused on resilience, prudence, and informed decision-making.

For Individuals: Building Financial Resilience

  • Debt Reduction Focus: Make aggressive repayment of high-interest debt a top financial priority. Understanding your personal DTI is the first step towards improving it.
  • Savings First: Recommit to consistent saving, even small amounts. Build an emergency fund and prioritize long-term financial goals like retirement, mitigating the impact of dipping national saving rates.
  • Budget with Discipline: Create and adhere to a realistic budget that accounts for inflation and potential income fluctuations. Differentiate between needs and wants.
  • Seek Professional Advice: Consult with financial advisors to review your personal financial plan, assess your risk tolerance, and optimize your investment and debt management strategies.
  • Cautious Spending & Investing: Approach major purchases and investments with caution, conducting thorough due diligence and avoiding overleveraging.

For Businesses: Prudent Growth and Risk Management

  • Optimize Operations & Cash Flow: Focus on improving operational efficiencies, managing costs, and strengthening cash flow. A strong balance sheet provides a critical buffer against economic headwinds.
  • Understand Your Customer: Deeply analyze evolving consumer spending patterns and preferences. Adapt product offerings, marketing strategies, and value propositions to meet the needs of a more cautious consumer base.
  • Diversify & Innovate: Explore new markets, diversify revenue streams, and innovate in product and service delivery. Seek out niches that cater to current economic realities.
  • Proactive Capital Planning: If seeking financing, prepare comprehensive business plans and robust financial projections. Explore diverse funding sources beyond traditional lending.
  • Talent Strategy: Focus on retaining key talent through engagement and development, while aligning workforce planning with anticipated demand.

Policy Considerations

  • Fiscal Prudence: Governments may need to exercise fiscal prudence, balancing support for economic growth with managing public debt, especially if the private sector is deleveraging.
  • Targeted Support: Policies aimed at easing the burden of high DTI for vulnerable households (e.g., debt counselling services, targeted affordability measures) could enhance financial stability.
  • Market Oversight: Regulators may need to maintain vigilance over financial markets to prevent excessive speculation and ensure stability, given the market-driven nature of net worth increases.
  • Productivity Enhancements: Policies that foster innovation, investment in technology, and skill development can help boost overall economic productivity, addressing underlying economic contraction.
  • Housing Affordability: Continued focus on increasing housing supply and addressing affordability challenges can alleviate one of the major drivers of household debt.

Frequently Asked Questions About the Debt-to-Income Ratio ([DTI])

Understanding your Debt-to-Income Ratio ([DTI]) is a foundational step in managing your financial well-being. This financial metric is becoming increasingly important as Canadian households navigate complex economic signals.household debt to income ratio dti

DTI Most Frequently Asked Questions (FAQs)

1. What exactly is the Debt-to-Income Ratio (DTI)?

The Debt-to-Income Ratio, commonly called DTI, is a key financial metric that measures the proportion of your income that is committed to paying off debt each month. It compares how much money a person or household pays towards debt obligations monthly against the total gross income (income before taxes) they earn each month. A higher DTI tells economists that debt is increasing faster than income, suggesting that households are becoming financially fragile.

2. How is my personal DTI calculated?

The DTI is calculated by following a straightforward formula:

(Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI (%)

“Total Monthly Debt Payments” includes all regular debt obligations, such as minimum credit card payments, car loans, student loan payments, and mortgage payments (principal and interest). Lenders focus on your DTI because a lower ratio indicates that you have more disposable income available to manage any new debt, making you a more appealing candidate for loans and mortgages.

3. What is considered a healthy versus a high DTI?

Benchmarks for a healthy DTI can vary, but generally, having a manageable debt level is critical for financial health. A high DTI means that a large portion of your income is already dedicated to servicing debt, leaving less money for things like discretionary spending, savings, or essential living costs.

Here is a general guide to interpreting DTI ranges:

• Below 36%: This is considered Excellent and is ideal for lenders, suggesting manageable debt and strong financial health.

• 44% – 50%: This range is Risky, indicating a high financial burden where you may face difficulties qualifying for new loans.

• Above 50%: This is Critical, representing a significant debt burden and extremely limited financial flexibility.

Households with a high DTI have less ability to cope with unexpected financial challenges, such as a major expense or job loss.

4. What is the current aggregate DTI for Canadian households?

Canadian households have historically taken on significant debt, especially mortgage debt. Recent data confirms that the aggregate household DTI has continued to climb, suggesting that debt is outpacing disposable income.

For the second quarter of 2025, the ratio of household credit market debt as a proportion of household disposable income was 174.9%. This means that for every dollar of household disposable income, Canadians held $1.75 in credit market debt. Furthermore, reports for the third quarter of 2025 suggested a further increase in the aggregate ratio to almost 177%.

5. How does a rising national DTI affect my ability to borrow money in 2026?

A high national DTI signals increased risk across the financial system. Since lenders are cautious, this trend will likely influence the lending environment in 2026.

Specifically, you may encounter:

• Stricter Rules: Financial institutions may tighten their lending standards, potentially requiring higher minimum credit scores and lowering the maximum DTI thresholds they will accept for large loans and mortgages.

• Increased Difficulty: If you are a first-time homebuyer or seeking to refinance, the elevated national DTI could make it harder to qualify for financing, especially if interest rates remain high.

• More Scrutiny: Lenders will focus even more intensely on your personal ability to service your existing debt.

For consumers, navigating 2026 successfully requires prudence, aggressive repayment of high-interest debt, and knowing—and ideally improving—your own personal DTI. This situation underscores why reducing debt and building emergency savings are crucial personal finance strategies.

Conclusion: Beyond the Numbers – A Call to Prudence

The December 11, 2025, Statistics Canada release presents Canada with a nuanced and challenging economic portrait. While the headline rise in household net worth might offer a superficial comfort, a deeper dive reveals a critical story of increasing DTI and dipping saving rates against a backdrop of a contracting national economy. This is not a broad-based economic triumph but rather a complex scenario where market-driven “paper wealth” coexists with growing financial pressure on many Canadian households.

The path ahead for 2026 is one that demands vigilance and strategic planning from all stakeholders. For individuals, it’s a call to strengthen personal financial resilience, prioritize debt reduction, and rebuild savings. For businesses, it’s an imperative to adapt, innovate, and manage risk with prudence and agility. For policymakers, it highlights the need for considered strategies that address both the symptoms and root causes of financial fragility.

Ultimately, while the numbers paint a complex picture, proactive planning, informed decision-making, and a balanced perspective of both opportunity and caution can help Canadians navigate 2026 successfully, fostering true, sustainable economic health rather than just an illusion of wealth.

Debt Relief Services Overview

Don’t let the burden of debt dictate your future for another day. A fresh start is not just a dream; it’s a legal reality available to you in Toronto, Vaughan, Woodbridge, Thornhill, Richmond Hill and all of the GTA. It is designed to help you regain control and peace of mind.

Ira Smith Trustee & Receiver Inc. is here to help you navigate your options with unparalleled expertise, genuine empathy, and unwavering professionalism. As Licensed Insolvency Trustees, we are the only professionals authorized by the Canadian government to provide these powerful debt relief solutions. We understand the legal framework and how to apply it to your unique situation to achieve the best possible outcome.

Take the crucial first step towards your debt-free future today. You don’t have to carry this burden alone. Contact Ira Smith Trustee & Receiver Inc. now for a FREE, no-obligation consultation. Let us help you find your clear path to a brighter, financially secure tomorrow. Your fresh start is waiting.

Ira Smith Trustee & Receiver Inc. is licensed by the Office of the Superintendent of Bankruptcy and is a member of the Canadian Association of Insolvency and Restructuring Professionals.

Contact Ira Smith Trustee & Receiver Inc. Today:

  • Phone: 905.738.4167
  • Toronto line: 647.799.3312
  • Website: https://irasmithinc.com/
  • Email: brandon@irasmithinc.com

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Disclaimer: This analysis is for educational purposes only and is based on the cited sources and my professional expertise as a licensed insolvency trustee. The information provided does not constitute legal or financial advice for your specific circumstances.

Every situation is unique and involves complex legal and factual considerations. The outcomes discussed in this article may not apply to your particular situation. Situations are fact-specific and depend on the particular circumstances of each case.

Please contact Ira Smith Trustee & Receiver Inc. or consult with qualified legal or financial professionals regarding your specific matter before making any decisions.

About the Author:

Brandon Smith is a Senior Vice-President at Ira Smith Trustee & Receiver Inc. and a licensed insolvency trustee serving clients across Ontario. With extensive experience in complex court-ordered receivership administration and corporate insolvency & restructuring proceedings, Brandon helps businesses, creditors, and professionals navigate challenging financial situations to achieve optimal outcomes.

Brandon stays current with landmark developments in Canadian insolvency law. He brings this cutting-edge knowledge to every client engagement, ensuring his clients benefit from the most current understanding of their rights and options.Infographic showing Canada's economy: Net worth up, economy contracted with rising household debt to income (DTI) & its 2026 impact on consumers & businesses.

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MORTGAGE ISSUES BREWING: CANADIANS ARE SERIOUSLY FALLING BEHIND ON DEBT

mortgage

Mortgage issues: Introduction

As per the latest findings from the Royal Bank of Canada (RBC or RBC Economics), a significant proportion of Canadians are currently grappling with debt payments, thereby heightening the risk of mortgage default in the future. The report reveals that the average Canadian owes $1.77 in debt for every dollar of disposable income, a trend that has been steadily increasing over recent years. This development is particularly concerning given the rising interest rates, which are exacerbating the difficulty of maintaining timely payments.

This Brandon’s Blog will explore the RBC report, the truth about household debt, including mortgage debt, in Canada, whether or not we are already in trouble and its implications for Canadian households.

The impact of rising interest rates on mortgage and other debt payments

The RBC report clarifies the negative impact of boosting the rate of interest on debt payments for Canadians. With the way we have seen the rate of interest growing, numerous Canadians are finding it significantly testing to handle their debt payments, specifically those with a variable-rate mortgage or loan product taken out at interest rates at pre-pandemic levels or credit card debt.

Interest rates have risen significantly, with the Bank of Canada’s Target Overnight Rate going from 0.5% in March 2022 to holding at 4.5% since January of this year. Anyone faced with renewing their mortgage is going to be in for a bit of sticker shock. The report also highlights a concerning pattern where a substantial number of Canadians are unprepared to handle the prospective fallout of rising interest rates on their ability to meet their financial obligations.

This RBC report highlights the expanding degree of debt among Canadians, which could potentially cause mortgage issues down the line. As more Canadians battle to keep up with their debt payments, RBC’s experience states that it is most likely that they might start missing mortgage payments. This could lead to serious consequences, such as the loss of their home or even bankruptcy. What’s even more, the report reveals that numerous Canadians are blissfully unaware of the possible dangers related to lugging around high levels of debt.mortgage

Understanding Household Debt in Canada

In order to attain a comprehensive comprehension of the ramifications of Canadian household debt, it is imperative to precisely define it. Household debt encompasses the aggregate sum of all financial obligations owed by Canadian households, including home mortgages, credit cards, lines of credit, and vehicle loans. Data released by the Bank of Canada indicate that the customary household debt-to-income ratio has been consistently escalating over the past few years, indicating a trend that is no longer just a blip.

This trend signifies that Canadians are taking on increasingly greater financial obligations in relation to their income. Coupled with the effects of inflation, it is apparent that, on average, Canadian household income is insufficient to meet the customary familial expenditures, resulting in families incurring more debt to maintain their standard of living.

Substantial household debt poses several possible risks to the Canadian economic climate. First of all, it can cause economic instability for Canadian households as they endeavour to satisfy their financial obligations. Second of all, increased degrees of financial obligation may result in a reduction in consumer spending, therefore negatively impacting the overall economy. Finally, households with elevated debt levels will likely be extra prone to default as the rate of interest hikes happens, potentially causing a cascade of defaults throughout the Canadian economy.

Canadians expect signs of trouble in the Canadian economy

Recent data indicates prospective problems surrounding Canadian household debt. In a survey of Canadians carried out by the Bank of Canada between January 27 and February 16, 2023, with follow-up interviews in March 2023, numerous key findings were uncovered.

The key findings were:

  • Assumptions for the rising cost of living in the coming 1 to 2 years have declined but continue to be dramatically greater than in the pre-COVID-19 period.
  • While consumers have reduced their price increase expectations for certain goods, such as commodities, inflationary assumptions for services such as rent stay raised.
  • A majority of consumers believe that the Bank of Canada faces obstacles in successfully lowering inflation because of high government spending and also ongoing supply chain disruptions. However, many remain hopeful that supply chain issues will be fixed within the next two years, resulting in reduced product prices influenced by the disruptions.
  • Alternatively, those that watch high federal government spending as a relentless inflationary force expect continued interest rate stress in the long term.
  • The present economic environment is characterized by elevated inflation and also a higher pattern of interest rates, which has actually resulted in installing strain on Canadians, especially those that are making monthly mortgage payments. Consumers are spending less on non-essential services, including leisure travel, eating in restaurants, as well as various other recreational activities.
  • A considerable majority of Canadians view an economic downturn to be one of the most potential end results for the Canadian economy within the following year. Nonetheless, many people continue to be uncertain regarding the direction of the economy, the labour market and unemployment rates. Such uncertainty has actually caused a tendency amongst consumers to reduce spending and increase savings as a preventative measure.
  • In spite of economic obscurity, workers show a favourable outlook on the job market, with several certain they could find new employment opportunities, especially those who are discontent with their present jobs. Private sector wage increase expectations are near an all-time high among employees.
  • Nonetheless, wage growth is expected to fall short of the rising cost of living, with most workers predicting their wages or salary will not equal current inflationary trends in the coming year.mortgage

Principal reasons for mortgage issues in Canada

Amidst the prevailing economic conditions, numerous homeowners are facing considerable difficulty in maintaining the escalating expenses associated with owning a home. Consequently, there is an anticipated surge in the number of defaulted mortgage payments in the forthcoming months. This trend is a source of apprehension for both homeowners and lenders.

As per the RBC Economics report, the principal reasons for mortgage-related issues in Canada are:

  1. The rising cost of homeownership includes rising property taxes, insurance costs, and maintenance expenses.
  2. Job loss or reduced income.
  3. Reduced economic growth.
  4. High household debt.
  5. Increasing interest rates. This is especially true for homeowners with variable-rate mortgages, as their payments can fluctuate over time.
  6. Unanticipated expenditures and low or no savings or emergency funds. Some homeowners may have taken on too much debt or purchased a home that was too expensive for their budget. In these cases, failed mortgage payments are almost inevitable.

The RBC report sustains the findings of the Bank of Canada study. It mentions that this might be due to a mix of elements, including climbing living expenses, stationary wage growth, and the high cost of housing. The repercussions of this could be extreme, affecting not only specific homeowners and their personal finances but the entire Canadian economic situation.

RBC states that it is critical that lenders, regulators, as well as policymakers, interact to address this problem effectively. Financial education, government programs and support for those dealing with financial debt can help protect against mortgage issues and defaults.

Consequences of mortgage issues in Canada

Failed mortgage payments can have significant consequences for both homeowners and also for mortgagees. For homeowners, missed payments can result in the power of sale or foreclosure process. This results in the loss of their house.

Potential lending institutions scrutinize credit history and also credit score prior to approving loan or mortgage applications. Uniformity in making payments is essential as it contributes to keeping a healthy credit rating. So being delinquent on debt and home mortgage payments and especially the loss of your house has a considerable unfavourable effect on your credit score and your capacity to get loans in the future.

The financial and mental stress of these mortgage issues cannot be overemphasized. It is vital that Canadians take positive steps to deal with their debt properly. The RBC report stresses the significance of looking for guidance and assistance from trustworthy financial specialists to help you be able to deal proactively with your debt problems before it is too late. By following this guidance, Canadians can protect their financial well-being and also avoid possible home mortgage problems in the future.

Delinquent mortgage and loan repayments can result in economic losses for lenders. Due to their reliance on periodic payments to sustain their operations, any missed payments can cause significant disruptions to their cash flow. This is particularly true for smaller lenders with limited resources as compared to larger organizations. When a substantial portion of a lender’s portfolio consists of delinquent and non-performing loans and mortgages, it can lead to a cessation of operations.mortgage

Coping with household debt and mortgage Issues: What Can Homeowners Do?

The RBC Economics report underscores the significance of proactive debt management by Canadians. While elevated levels of household debt may trigger apprehension, there are measures that individuals can undertake to mitigate the risk of financial ruin. One crucial approach is to look carefully at your personal finances and devise a budgetary plan and adhere to it. This can assist households in identifying superfluous expenditures and making necessary adjustments.

Furthermore, households ought to prioritize the repayment of high-interest non-mortgage debts such as credit cards. CTV News reported that non-mortgage debt is up by 5.4% when comparing the fourth quarter of 2022 to the same time in 2021. Seeking the guidance of a financial expert in developing a debt management strategy can also prove advantageous.

In the event of mortgage payment difficulties, there are several prudent measures that homeowners may take to forestall losing their homes. Firstly, contacting the lender and providing details of the financial predicament may yield positive outcomes. Numerous lenders extend hardship programs that facilitate a reduction in monthly payments or an interim suspension of payments.

In the event that you have an insurmountable challenge of making home mortgage payments and the looming threat of losing your home, it may be a good idea to very carefully consider the option of selling your residential property. By doing so, you can properly avoid the damaging end results of defaulting and losing your home and ultimately embark on a clean slate of living in a more affordable home.

All of these recommendations can be found in my May 1, 2023, Brandon’s Blog “MAXED OUT CREDIT? YOU NEED TO KNOW HOW TO INCREASE CREDIT SCORE: OUR 13 INTRIGUING TIPS TO IMPROVE YOUR CREDIT SCORE”.

However, if things have gotten out of control and your creditors are already pounding at the door, making harassing collection calls and possibly even suing you, you need to take immediate action. Contact me anytime by phone or email.

Mortgage issues: Conclusion

The RBC report has brought to the fore the intensifying concern of Canadians back-pedalling on their debt payments. The scenario is rather disconcerting, specifically given the surge in the rate of interest that pose a formidable challenge for Canadians to stay current with their financial obligations.

In addition, higher interest rates and the price of necessities of life have increased concerns about the surging debt levels amongst Canadians and the possible difficulties that could arise in the home mortgage market in the future. It is imperative that Canadians take aggressive measures to address their financial debt management strategies and appropriately plan for the ramifications of this new higher interest rate environment.

I hope you enjoyed this mortgage issues Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy proceedings. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.mortgage

 

 

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CANADA RECESSION: 8 ESSENTIAL SMART STEPS TO KEEP YOUR BUSINESS GOING IN A DOWN ECONOMY

canada recession

Canada recession: Can you operate a business if there is a recession in Canada?

During slow economic growth and economic downturns in the Canadian economy, companies cut costs and especially labour costs. I wrote about Canadians’ fears of the Canada recession two weeks ago. Job losses go hand in hand with tough times. For many people, gaining new meaningful employment is very tough and sometimes impossible. For those people with dim economic prospects in the Canadian labour market, starting a small business in tough economic times is really their only option.

Despite the challenges a weak economy and the current recession fears may pose, starting a small business can be a rewarding experience with the proper amount of planning. In this Brandon’s Blog, I provide my 8 best tips for either changing parts of your business or starting a small business during tough economic times and maybe even a Canada recession.

How must business owners respond to a Canada recession?

Right now, no economist is prepared to forecast the Canada recession risk. Will it be a mild recession, a severe recession or will we even have one at all? The current and forecasted monetary policy of the Bank of Canada with its overnight rate hikes to its benchmark rate has financial markets, Canadian businesses and Canadian households all on edge. It is not just Canada as the heads of the central banks of all advanced economies reacted to the pandemic the same way and are now all acting in concert with rate hikes in an attempt to curb the now persistent inflation.

We are in somewhat of new territory as this period of time is very different than previous recessions and financial crises. We are experiencing economic shocks due to the COVID-19 pandemic and the shutdown and restarting of the Canadian economy. There is not a lot of either business confidence or consumer confidence in the marketplace right now. The consumer price index is increasing due to rising inflationary pressures and the inflation rate in Canada.

Small business owners need to have a well-crafted business plan, especially during an economic downturn. This is because it can be more difficult to get financing from lenders when money is tight. Therefore, starting a small business during a recession can be challenging. If you want to have success in your business, new or established, you need to put some serious effort into cash forecasting and knowing your bottom line. This means understanding how much money you need to bring in, what your operating costs are, and ideally how to make a profit.

canada recession
canada recession

How to financially prepare my business for a Canada recession

Here are some methods that can help ensure your business does well during challenging financial times. Whether you’re just starting or need to make some adjustments to your existing company, these pointers can help you survive as well as also grow.

You can even find success at some level during turbulent economic activity. The reasons are as follows:

  • You may find that there is less competition during this time. This is because most people tend to start businesses when the economy is doing well.
  • You may find certain things are cheaper, the overhead costs of things that you need for your business to run. Think about working from home or renting a location that has been vacant for a while. Think of used furniture and materials, which you can buy at a discount or maybe even from a bankruptcy sale.
  • If you service your customers you gain during this time well, your good relationship will be a good reason why they will be more likely to stay in touch with you when the economy improves. This is especially important if you can offer them a more affordable option than the competition.
  • More mature businesses tend to stifle or prevent innovation during downturns. You can use this time to come up with new ideas that might be missed and give you a better position when you open doors, real or virtual.

The success of your company is based on how well you study the actual domestic demand for your product or service in the marketplace. It is just as important to comprehend what target price you need to reach in order to make sales. Furthermore, you need to understand what sales level you need to hit to both break even and also to be profitable.

Canada recession financing

It’s always an excellent idea to have someone you trust assess your business plan and cash flow forecast before trying to obtain financing. This will help you catch any essential issues you might have missed or inaccurate assumptions you have actually made as it relates to your business and its capital requirements. Some resources you might wish to turn to for help before looking to financial institutions for a loan include:

  • friends who have their own business;
  • someone at the bank where you do business with who you have a good relationship; or
  • your accountant

The Canadian economy could be pushed into a recession by the federal government’s reaction to the COVID-19 pandemic. If you’re considering starting a new business during these challenging times, you need to be very cautious. Your ability to develop a financial backup plan for your business and personal finances if you don’t meet your initial revenue target is more important than your ability to borrow money. It is normal for any new business that you will not be able to draw a salary during the 1st year of your new business.

You should also have a personal cash reserve so you have enough to live on for ideally the first 12 months of a new business. Make sure you budget carefully so you can keep making your most critical payments: rent/mortgage, insurance, utilities, and food. Finally, check your gut and your bank balance to make sure you’re ready to embark on your new adventure.

canada recession
canada recession

Canada recession: Sell ​​shrewdly

Starting a new business at a time of sharp economic downturn and turbulent economic activity requires creativity and resourcefulness. Marketing is critical to staying ahead of the competition. Make sure your business plan really fleshes out the marketing process: What exactly are you trying to sell? Who is your target customer? How will you price your product or service? What is your business promotion plan?

Dividing your original customer base into smaller pieces or niches is another strategy to allow any business to market more strategically. For example, if you are offering professional services for women, are you able to narrow it down to women in a specific age group, occupation type, or geographic location? Or, can you tier your product offering so that there is a relatively low-cost entry point product to allow new customers to try out your business and to allow you to then move them up to higher-priced and more profitable product offerings?

Can you think of ways to expand your customer base? For example, if you have a business shipping recipes and ingredients on a subscription basis for people to cook their own dinners without having to go do the shopping, could you also offer packaged dinners to customers who just want the convenience of heating and eating?

Canada recession: Ongoing competitive analysis

Be informed of your competitors’ movements in terms of marketing and product design. Are they enhancing the product? Devaluing the price? Utilizing original promotional methods? Knowing your competitors’ standings will help you formulate a unique selling proposition and grow your market.

Think about which segments your competitors are not serving, or which leads they are missing, and then fill that gap.

canada recession
canada recession

Canada recession: Start small…with a plan to expand

As you start your business, be mindful of both your expectations and expenses. Try to be conservative in your estimates and plans, then adjust as your business grows. Review your business plan periodically and reconsider what is truly necessary to get started. For example, could you open in a smaller or cheaper location? Or, could you avoid the need for physical space by staying virtual?

When you have found the most cost-effective space for your business, think about your staffing needs. Before hiring permanent staff, you could use independent contractors as temporary or part-time workers.

If you are aware of a similar business that is failing, you may be able to find some great people who are willing to be paid less than in a more active market. Offer fewer employee benefits initially and then increase them as your profits grow. You don’t want to offer all sorts of great benefits at first and then find out you can’t afford them later. Taking away benefits is much worse than not having given them in the first place.

Immediate business growth in a challenging economy is unrealistic. An aggressive approach in a Canada recession or a down economy is unwise. You should be looking for sustained business growth over time.

Canada recession: Leverage technology to your advantage

The right tools are essential for business success. Utilizing modern technology can help you to stay organized, connected with customers and effectively market your company. CRM systems help you track your customers’ interests, so you can focus on products and services that best meet their needs.

The latest technology gives entrepreneurs more options for selling online and through multiple channels. You can save on advertising costs by doing email marketing, blogs, podcasts and of course optimizing your website for SEO instead of opting for more expensive electronic or print ads. And when you need inspiration, you can turn to social media and online publications and groups focused on helping entrepreneurs.

canada recession
canada recession

Canada recession: Your network

Building a strong network is essential for anyone looking to advance their career or grow their business. Getting involved in local business groups and networking events is a great way to meet other like-minded individuals and make valuable connections. Joining professional associations or local clubs and organizations related to your industry is also a great way to expand your network and get your name out there.

Canada recession cost reduction ideas

With inflation pressures causing rising prices, cost reduction needs to be a key element of running your business. A gloomy economy can actually mask some great ways to save money. Creative ideas to reduce your start-up costs include:

  • Be very careful when making capital investments due to their mid and long-term nature. Leverage the economic situation and negotiate everything. You may be able to get a sharp drop in prices if you can demonstrate that you can afford to pay the lower price in full and on time.
  • Buying supplies from businesses that are about to go out of business or need to reduce inventory, especially bulky items like electronics and office furniture.
  • Barter with other business owners to find business alliance possibilities and suggest trading in products or services to offset costs.
  • Initially, do your own legal, financial and business homework through free online resources.
  • Compare business credit cards for the best deals.
  • Find a bank account that meets your small business needs including access to brick-and-mortar and online services as well as attractive rates and incentives.

    canada recession
    canada recession

Canada recession key takeaways

Before seeking financing, consult with another business owner or friend to review your business plan. Develop a marketing strategy tailored to your business goals. Start small and expand when you see improvements. Secure your network and find ways to keep costs down by utilizing available technology.

You should begin with small steps and then increase your efforts when you start seeing improvements. Make sure your network is secure and look for ways to reduce costs. Make use of appropriate existing technology.

Although it may be challenging, there are benefits to starting or running a business during an economic downturn. By being thoughtful and strategic about cost-cutting measures while still providing value to customers, you can set your business up for success.

Canada recession conclusion

I hope you found this Canada recession Brandon’s Blog interesting. Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt help.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost consultation.

canada recession
canada recession
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THE HOUSEHOLD DEBT-TO-INCOME RATIO: HOW COVID-19 CHANGED THIS 1 SIMPLE EFFECTIVE MEASURE

We hope that you and your family are safe, healthy, and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Household debt-to-income ratio: Understanding the debt-to-income (DTI) ratio

Your household debt-to-income ratio indicates how much of your gross monthly income goes toward paying off your debt. In order to find your DTI ratio of household debt percentage, multiply the result by 100. The debt-to-income (DTI) ratio is a measure of how much income a person or organization generates in order to service household credit market debt.

Based on income, the household debt-to-income ratio, or as it is also called, the household debt service ratio, measures a family’s ability to pay monthly debt obligations. Divide the monthly debt obligations by the gross income to calculate the DTI ratio.

When considering a mortgage or loan, the household debt-to-income ratio is a critical metric. You may find it more difficult to get a mortgage if your household debt-to-income ratio is high, or you may end up getting smaller loan approval. Your household debt-to-income ratio is calculated using your income, debt, and credit (mortgage) accounts.

I wrote a blog almost one year ago on the Canadian household debt-to-income ratio at that time. At the time of the COVID-19 pandemic, I discussed what happened to the household debt of Canadians.

I provide an update one year after discussing a recent report by Statistics Canada about the household debt-to-income ratio in Canada during the fourth quarter of 2021.

Household debt-to-income ratio: Debt-to-income ratio example

Here is an easy-to-understand example. Sally is looking to get a loan and is trying to figure out her household debt-to-income ratio. Sally’s monthly bills and income are as follows:

  • monthly mortgage debt payment (P+I): $1,000
  • monthly auto loan payments: $500
  • credit card debt monthly payment: $500
  • household gross monthly income: $6,000
  • Sally’s total monthly debt payment is $2,000:
  • Sally’s household debt service ratio is 0.33:
  • 0.33 x 100 = In other words, Sally has a 33% household debt-to-income ratio.household debt-to-income ratio

Household debt-to-income ratio: Pre-pandemic debt pressures

Prior to the pandemic, household debt Canadians carried increased steadily. During the last decade, more and more Canadian homes carried debt. Canadian household debt-to-income ratio was 150% in 2012, according to Statistics Canada.

In other words, the increase in debt was rising at a rate of $1.50 for every dollar of income. A DTI ratio of 175.4% was reached in the first quarter of 2020. Before the pandemic, Statistics Canada estimates the household debt-to-income ratio was 181.1 percent.

Debt increases can negatively affect a household’s bottom line, and the larger the debt, the greater the negative impact.

The impact of COVID-19 on the household debt-to-income ratio in 2020: The temporary income boom of 2020 supported Canada’s household debt.

Even if the federal and provincial government financial income support payments given to Canadians through the COVID-19 Economic Response Plan aren’t considered an income surge, it is an income rise.

Fndings released by Canada Mortgage and Housing Corporation (CMHC) in November 2020 showed that the government assistance did help Canadians cope with their household debt.

In the CMHC report, the following were the key findings in Canada:

  • By the end of Q2 2020, Canada’s household debt ratio is 17% lower than Q1’s 158%.
  • Likewise, the home mortgage DTI ratio fell from 115% to 105%.
  • A rise in household disposable income caused these declines.
  • The amount of outstanding household debt in Canada did not change.

Canada’s household disposable income increased by almost 11% between Q1 and Q2 of 2020 and by 15% year over year. The extra cash doled out by governments caused this. This new cash in bank accounts was not from greater household savings.

After the government temporarily transferred money to Canadian families, the household debt-to-income ratio declined to the lowest level since 2010.

Household debt-to-income ratio: Uncertainty in household debt during the second wave of COVID-19

During the second wave of the COVID-19 pandemic, the financial situation of Canadians had changed significantly. Especially in the financial real estate industry, the DTI ratio is an indication of financial obligations as a vulnerability.

The Canadian financial institutions stopped deferring mortgage payments at the same time. Even with the then extremely low-interest mortgage rates on mortgage loans, this obviously led to concerns about Canadians’ ability to make their mortgage payments. Other government assistance programs ended.

With the end of government support programs that temporarily boosted monthly household income, Canadians faced uncertainty about how they will be able to carry and pay down their household debt.

In the second quarter of 2021, the household debt-to-income ratio of Canadians decreased in all significant Canadian cities. Normally, such a decline would indicate a general improvement in families’ monthly income, their ability to afford monthly payments and pay off financial debt, be it mortgage debt service or consumer debt such as auto loans and credit card debt service.

Subsidies from the federal government effectively helped households to pay off debt. Canadians were more than likely able to lower their non-mortgage debt during those months. However, the mortgage component of Canadian household debt has increased in the majority of metropolitan areas while employment has decreased.

household debt-to-income ratio

Canada household debt-to-income ratio: What my predictions of financial challenges for 2021 were

I predicted that as the economy recovers from the economic effects of the Coronavirus, Canadians will be facing a great financial challenge. As a result of the COVID19 pandemic crisis, Canada’s economy pretty much stopped.

Many Canadian families have experienced extensive income losses as a result of this. For those who are heavily indebted, this is particularly true. A key concern with regard to financial stability is whether homes can keep up with their financial obligations. A financial crisis may very well befall highly indebted Canadians.

Bank of Canada was concerned about the financial challenges that Canadians will face in 2021. Can Canadian homes withstand the storm? The answer lies with:

  • household financial health as of February 2020;
  • the effectiveness of the Canadian Government’s recovery support measures and policy activities; and
  • the pace of the labour market’s recovery.

As the economy recovers, the Bank of Canada looks at a variety of household debt factors. Those with greater financial vulnerability are of particular concern. Some factors that will cause concern among the Bank of Canada are:

  • The homeowners with few financial safeguards.
  • Although it does provide a financial reserve, home equity lines of credit are also associated with increased borrowing.
  • Will the government’s fiscal policy help support Canadians until incomes recover to pre-pandemic levels or exceed them?
  • In some cases, unemployment rates may not be a reliable indicator of household revenue losses.

We have entered the first quarter of 2022, so let’s see how the economy and Canadians fared in 2021.

Statistics Canada says household debt-to-income ratio hit a record high in Q4

In the fourth quarter of 2021, household disposable income declined as housing prices, housing costs, and mortgage borrowing rose, according to Statistics Canada. As a percentage of disposable income, financial markets saw that household credit market debt rose to 186.2 percent in the fourth quarter, up from 180.4 percent in the third quarter. Credit market debt accounted for $1.86 of household disposable income for every dollar of disposable income.

Consumer credit market debt rose by 1.9 percent in the fourth quarter, while consumer disposable income decreased by 1.3 percent. Household debt increased by $50.0 billion seasonally adjusted in the fourth quarter. A total of $46.3 billion was attributed to mortgages, while $3.7 billion was attributed to non-mortgage loans.

Household debt service ratios increased in the 2021 4th quarter, measured as total obligated payments of principal and interest on credit market debt as a percentage of disposable income. The ratio stood at 184.7 percent in the third quarter of 2018, and the previous record high was 181.1 percent in the fourth quarter of 2019.

Canada household-debt-to-income ratio summary

I hope you enjoyed this household debt-to-income ratio Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today Call us now for a no-cost consultation We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are remaining safe, healthy and secure during this current pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

household debt-to-income ratio

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IS MORTGAGE DEBT NOW THE OBSESSION FOR MANY CANADIANS?

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Is mortgage debt surge responsible for pushing Canadian consumer debt levels higher?

For many people in Canada, a house is the centre of the family’s financial world. As a result, if the family’s financial situation changes, the house, and the mortgage that goes with it, become the focus of the family.

Is mortgage debt pressing consumer financial debt higher in Canada?

Equifax Canada recently reported that it is. One effect of the pandemic is that Canadian credit card usage and debt are dropping, as families borrow more cash right for their homes while spending less on everything else.

In this Brandon Blog, I offer some thoughts on why is mortgage debt rising, pushing total Canadian consumer debt above pre-pandemic levels, while credit card debts are falling during the COVID-19 pandemic.

Is mortgage debt surge pushing Canada consumer debt to $2.1 trillion?

Those in the real estate sector in Canada will certainly agree that the housing market is one of the greatest financial factors that influence the success of the Canadian economy. These days, the sector is exceptionally competitive which has a great influence on the housing market.

Competition among residential real estate buyers is fierce in many markets throughout the nation, especially British Columbia and Ontario. The pandemic has actually stimulated a record boom in Canada’s housing market. Low rates of interest, as well as brand-new demand for a larger home, have actually sustained bidding battles for houses.

What’s behind the record-breaking growth in the hot housing market in Canada? Is mortgage debt behind the increase in mortgage debt? Yes, according to Statistics Canada. It stated last Friday that Canadian families incurred a new high level of mortgage debt in the 2nd quarter in a row. Canadian households added record mortgage debt amid low interest, high prices.

Driving hot markets in many regions aided move real estate prices and the average sale price higher, pushing the need for home loans to $34.9 billion in the 4th quarter of 2020. This need beat the previous high of $28.7 billion in the 3rd quarter, Statistics Canada reported.

is mortgage debt
is mortgage debt

Is mortgage debt growth making Canada’s economy vulnerable? The central bank says yes

What is the Bank of Canada‘s worries? The Bank of Canada said that growing mortgage debt makes Canada’s economy vulnerable.

High household debt, as well as inequalities in the real estate market, have escalated in the past 12 months, leaving the economy more prone to economic shocks. The central bank said that although consumer debt had actually dropped in early 2020, a boost in housing debt has more than balanced out that decrease, with total household debt climbing sharply since mid-2020.

That is one reason why, effective June 1, 2021, the Office of the Superintendent of Financial Institutions (OSFI, Canada’s leading financial regulatory authority, elevated the home mortgage stress test level for mortgage applications through banks, insurance companies and credit unions. It does not yet apply to private mortgages.

The stress test was raised so that borrowers must now be able to meet the financial test to carry a mortgage at an annual interest rate of either 5.25 percent or 2 points over the actual mortgage market rate they can get, whichever is greater. This will certainly make it harder for some to get approved for a home mortgage. The government hopes this will lead to reducing the pool of accepted borrowers as well as eventually, lowering residence rates.

The June 1 adjustment implies potential mortgagors will certainly need to prove that their finances can stand paying at that greater interest rate, no matter what rate a lender is willing to lend at. OSFI hopes that this adjustment will reduce either the number of buyers or the amount a purchaser can afford to pay given the mortgage financing available to them. The hope is that it will stem the higher pressure on house prices in the country.

Is mortgage debt the only reason Canadian household debt is so high?

As you can see from the above, mortgage debt is up but credit card debt is down. in fact, it is at a 6 year low. So is mortgage debt the only reason total household debt is up? When I speak of mortgage debt, I am talking about conventional mortgage debt. The answer is no.

Equifax Canada also reports that other big-ticket credit products like credit lines have likewise represented a general increase in Canadian financial debt. She said there was a 60 percent rise in house equity credit lines! Like mortgage debt, this is a secured debt registered against the borrower’s home.

People are borrowing these additional home equity lines of credit. The worry is if rates of interest rise, individuals may not be able to pay the debt servicing costs and the debt payments for that financial obligation. Those kinds of loans are usually at a variable interest rate.

is mortgage debt
is mortgage debt

My take on why is mortgage debt and other household debt driving in these directions?

It wasn’t an interest rate boost that forced Canadians to get consumer spending in check – it took a pandemic for many of us to transform our spending practices. Stay-at-home orders, lockdowns, nowhere to go and fewer places to spend our money have all contributed to what we are now seeing. Couple that with many Canadians being able to work from home and Canada’s COVID-19 Economic Response Plan.

Consumer spending shifted away from credit card spending. My personal view is that people’s spending patterns shifted away from consumer goods that normally would be charged to credit cards. Perhaps some of the increase in home equity lines of credit was to consolidate debt by borrowing against their homes to pay down high rate credit card debt.

Also, people were hunkered down working, going to school and generally living 24/7 in their homes. We all got to see the points we love about our home and perhaps noticed for the first time, or at least were bothered for the first time, with little imperfections in our homes. That could lead to increased borrowing in order to do additions or renovations.

It also could lead to selling the existing home and buying a different one and moving. Maybe that drove more demand than there was supply, which caused home prices to continue rising. Increased pricing required increased mortgage application numbers, mortgage borrowing, the individual size of mortgages to increase and drove total mortgage growth. Perhaps FOMO also contributed to the increased demand.

This is merely conjecture on my part, but one thing is for sure. The pandemic could not stop house prices from rising, mortgage debt from increasing and credit card debt from reducing. Overall, household debt increased. The worry now is if interest rates rise, it will take a larger proportion of household income to meet debt servicing requirements. Hopefully, everyone’s household budget will be able to handle it.

Is mortgage debt now the focus for many Canadians?

Apparently so. I hope that you found this Is mortgage debt now the obsession for many Canadians Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

is mortgage debt
is mortgage debt
Categories
Brandon Blog Post

DEBT COLLECTIONS NEWS: EXPECT MENACING DEBT COLLECTIONS ACTIVITY TO PICK UP AS THE ECONOMY REOPENS

debt collections
debt collections

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this debt collections Brandon Blog, please scroll to the very bottom and click play on the podcast.

Expect debt collections activity to pick up as economy reopens: experts

On March 2, 2021, The Canadian Press published an article by Salmaan Farooqui titled Expect debt collections activity to pick up as economy reopens: experts. The crux of the article is that credit specialists state Canadian consumers who owe money must prepare for debt collection agencies to increase their activities as the Canadian economy reopens.

During 2020, lenders and by extension, their collections agencies, had eased up on debt collections from Canadian households and companies. The reason for this drop in demands being made on outstanding debt was the COVID-19 pandemic. Lenders knew that all Canadians were hurting and there were even some loan deferral programs put into place.

But these credit experts are now seeing signs of debt collections picking up. Statistics Canada reported that the Canadian economy started to bounce back in January 2021. No doubt this pickup in the economic activity is making creditors consider if now is a good time to start taking action to try to collect on credit card and other delinquent debt.

As the article indicates, there is a fair bit of pent-up demand now for collection agency services. So if you are one of those expecting calls from debt collection agencies, here are some tips that they do not want you to know.

Debt collections: What is a debt collection agency?

The best answer is found in the question itself: A debt collection agency is an organization that collects debts. Now, ask yourself the follow-up question: What is a debt? It’s money that you owe to another person, company or organization.

In essence, debt collection agencies are hired by businesses and individuals to collect money that is owed to them. The agencies work for the creditors and not for consumers.

In Ontario, collections agencies or debt collectors are people or companies who:

  • obtains or arranges for settlement of debts owing to a person or company;
  • sells forms or letters claiming to be a debt collections system;
  • offers debt settlement services; or
  • buys up from lenders different types of debt that are in arrears and tries to collect on the debts.

Ontario debt collectors need to pass the eligibility requirements to register and operate a collection agency.

Debt collections: What debt collectors do

When a person or company is unable to pay what is owed, they are said to be in debt. When a creditor cannot collect the debt, the creditor may contact a debt collection agency for assistance.

A debt collector contacts the individual or business that owes the money and attempts to collect debts owed to the debt collector’s client. Debt collectors earn a commission of around 25% of the money collected. They are not allowed to harass or threaten people to get money.

In Canada, the law on debt collections and debt collectors is set by the individual provincial governments. In Ontario, the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 sets out all the requirements that collections agencies and each collection agent must abide by.

debt collections
debt collections

How Reputable Collectors Operate

We have all heard horror stories about collectors. Reputable collectors use their reputations to help recover funds. For example, if you are a lawyer specializing in debt collections, you use your reputation to persuade clients that you will recover the funds owed to them. If you are a supplier, you can use your reputation to persuade a debtor to pay. If you can prove your reputation, you have a better chance of collecting the monies owed to you.

Let’s say you’re a collector, and you’ve been retained to collect on a debt. The debtor has previously agreed to repay the debt but has not yet done so. What do you do next? Reputable debt collectors will first send a demand letter that also acts as a debt validation letter.

In the letter, they confirm the debt and give a certain period of time for the debtor to pay. If the debtor does not then contact the collector to try to enter into a debt settlement plan, then the collector starts calling the debtor to collect on the debt. But there’s a chance that these activities will not be enough to get the debtor to pay. In fact, the debtor might even become hostile. In that case, a lawsuit may be their next step.

What to Expect When You Have Debt in Collections

Canadian debt collectors are regulated by the province they operate in. They keep creditors from giving up on their credit delinquencies. In most cases, debt that gets to the debt collections stage is in the hands of a debt collector within a few months of the date the debt went into default. Debt collectors have the power to negotiate settlements for delinquent debt. Their success rate in collecting on debt is better than that of a creditor. The debt collector will make one or more attempts to collect on the debt, usually first by mail and then by phone.

If you have received a letter from a debt collector, or you are being sued for any outstanding debts, you are at a turning point in your financial life. You may have already begun to feel overwhelmed and don’t know where to turn. If you have been sued, the court may have already ordered you to pay. This can feel overwhelming, but there are options for you to consider.

With a debt in default, credit scores suffer. Debt collectors will report any unpaid debt to the credit bureaus, regardless of whether or not the debt is legitimate. It will negatively affect your credit score.

This is because the credit bureaus consider unpaid debt collections to be a negative financial obligation or credit risk. If you have a debt in default, you are probably worried about your credit score.

Debt collections: What Can a Collection Agency Do To Me in Canada?

A collection agency can demand payment for an outstanding debt. When the debt is handed over to a collection agency to try to recover the debt, that places a bad mark on your credit report. With you being in debt collections, you will have to pay some money if you want to settle the debt. The payment will depend on the situation, and there is a lot to consider when making a decision.

For example, you will need to consider how much money you owe and how much the collection agency will require you to pay. When you have outstanding debt, it is important that you make sure you either pay it in full if you can afford to, work out a payment plan to pay the full amount over time or, see if you can settle with the collection agency for a reduced amount you can afford to pay immediately. This will avoid the potential for the collection agency to turn the account over to a lawyer and take legal action against you.

debt collections
debt collections

Debt Collections: Can a Collection Agency Charge Interest in Canada?

The rate of interest that some debt collection agencies charge their customers is quite high. The reason is that the type of debt they are collecting, such as credit card debt, originally charged a high rate of interest on late or defaulted payments, or on the outstanding balance if you only made minimum payments.

A lot of Canadians do not know that a debt collection agency in Canada can charge interest on the outstanding financial obligation. A collection agency may be able to charge interest on the debts they are collecting. Nevertheless, this can be no greater than what was originally described in the agreement between the lender and customer.

So, while they can bill you interest just like a lender can, they cannot control how much the interest is and cannot tack on any extra charges, such as for their collection service.

Debt Collections: What Should You Do If You Are Being Pestered By a Collection Agency?

So, what should you do if they won’t leave you alone? Well, the most effective answer is to, certainly, answer them and agree to pay your financial obligations. This can be done by paying completely, setting up a payment plan, or reaching an agreement to pay a lesser amount immediately.

Each option will have its pros and cons, and its success relies upon your financial scenario as well as preferences. Typically speaking, it is best to pay the financial debt completely. However, I recognize that can be challenging, specifically if the amount of debt you owe is quite considerable. Any way that you are able to get this debt off of your credit report as well as off of your back is a good thing. Any one of the techniques I mentioned is much better than just allowing the financial debt to age and worsen.

The debt collection agencies will be calling

Information from Equifax Canada reveals that just 24 percent of debt-ridden Canadians who accessed deferral programs beginning in 2020 were able to utilize the breathing space to improve their credit situation.

So what we discussed so far is:

  • The Canadian economy seems to be starting its recovery and should show economic growth in 2021. For sure there are still people feeling pain in different sectors of the economy and we are not finished with the shutdown conditions in Toronto and elsewhere in Ontario.
  • How the debt collections business works in Ontario.
  • There are many Canadians who are debt-ridden.
  • If everyone in Canada pulled their credit report only 24% of the reports would show an improvement since the COVID-19 pandemic began.
  • The news according to the experts is that there will be growth in the debt collections industry. These businesses are going to return to make their phone calls to consumers trying to collect on old unpaid debts. They may even start legal action against some borrowers.

So what is next as the economy and consumer confidence pick up is that debt collections activities will pick up again too. What can the remaining 76% of Canadians who could not improve their situation since the COVID-19 virus hit do when the bill collectors call? There are various options for them, and the 24% that wish to still make improvements to their credit reports and credit scores. Here are some suggestions.

debt collections
debt collections

6 fantastic reasons to create and follow a household budget to track your household spending

As you know, I have written many blogs on the benefits of preparing, monitoring and following a budget for your household spending. The advantages of doing so include:

Here are 6 fantastic reasons you should have a household budget plan:

  1. A spending plan offers you control over your cash: A budget plan is a list of all sources of your monthly income and all your expenses that you need to make those monthly payments on. It enables you to plan how you will use your cash. As opposed to money just flying out of your wallet, you make willful decisions on where you desire your cash to go. You’ll never have to wonder at the end of the month where your cash went.
  2. A family budget keeps you concentrated on your financial objectives: Budgeting will permit you to fulfill your economic objectives – paying down debt should be the primary objective so that you don’t get nasty calls from the debt collectors. Then you can allocate savings for other purposes such as an emergency fund, a vacation, money for a retirement savings plan and purchasing a home. With a budget, you’ll recognize specifically what you can afford and you can choose where your cash is spent. For example, if your immediate objective is to save for that down payment on a condo or house, then you might need to abandon that vacation you intended to take. Your budget plan will inform you precisely what you can or can’t afford.
  3. A household budget will make certain that you don’t spend what you don’t have: Credit cards provide such ease of use but that is also what makes them really easy to up your spending since it does not feel like there is any real money traded in the deal. Canadians can rack up serious charge card bills and land up deep in the red before they realize what’s happened. When you create and adhere to your budget plan you have to count every little amount you spend, even if it’s a credit card purchase. You will not wake up deep in the red, wondering just how you arrived at that place.
  4. A spending plan will prepare you for the unanticipated: Every budget plan should have a rainy day fund for those unforeseen expenses. It’s suggested that you must budget for 3 months worth of costs for when there may be an unexpected layoff or various other unplanned major expenditures. Do not be alarmed; you don’t have to create that 3-month cash fund immediately. Grow your fund up gradually. If you haven’t started one yet, then even a small amount each month set aside is an improvement.
  5. A family budget minimizes stress: Many Canadians panic on a monthly basis about where the money will come from to pay their expenses. A budget will offer you peace of mind. It shows you just how much you earn and also what your expenses are. If need be you can decrease unneeded expenses or try to get added work to live within a balanced budget plan. Say goodbye to panic at the end of the month.
  6. A budget plan can help you get the retired life you’ve been dreaming of: Saving for your retirement is very crucial and your spending plan can help you save for your future. Set aside part of your revenue on a monthly basis for retirement savings. Begin early and also constantly stay with it. The money you save now will certainly determine the kind of retired life you can anticipate.

When budgeting alone is not enough and you need some debt settlement

In many previous Brandon Blogs, I have described the important role of the community-based non-profit credit counselling organization. I am not talking about for-profit debt counselling services that have inviting advertising and jingles. Those kinds of organizations you must stay away from. In fact, one is defending a class-action lawsuit in British Columbia. If the class-action lawsuit is successful, it and companies just like it will be put out of business.

These companies suck fees out of the debtor until they cannot pay anymore. Then they walk you down to their favourite licensed insolvency trustee to file a consumer proposal. Consumer proposals are the only federal government-approved debt settlement plan. Only a licensed insolvency trustee can administer consumer proposals.

You could have saved the fees that you really couldn’t afford to pay in the first place, just by going for a no-cost consultation first with the licensed insolvency trustee.

What I am talking about is the true non-profit debt counselling agency. They do not charge you fees. They can review your budget to make sure that it is realistic and give you additional help. They can also try to strike a deal with your creditors for you to either pay the full balance out over time without additional interest or penalties or, a reduced payout now.

Can you raise money on a payment plan that you can afford the monthly payments?

Should you consolidate your unsecured debts? Consolidation is the combining of unsecured debts into one low monthly payment with one creditor. These loans typically carry a lower interest rate than the original credit cards or other unsecured debts. You have to make sure that the terms of the consolidation loan are as good as or better than their current credit card terms.

When it comes to getting a consolidation loan, there are a few things you should know. First, a consolidation loan is a loan that you take out to pay off multiple other loans. Second, you may already have a consolidation loan if you have a home equity loan or a home equity line of credit. If you have an unsecured loan, you can consolidate it into a secured loan, where the creditor can take your home if you don’t pay back the loan.

Turning an unsecured loan into a secured loan is not something you should do if you are already contemplating filing a consumer proposal or an assignment in bankruptcy. However, working with your financial advisor, accountant or non-profit credit counselling services agency, you may find that the risk is worth it. That would be because your budget shows that you can afford the lower monthly payment repayment plan if you get the debt consolidation loan. It is also good if it actually helps you avoid an insolvency filing.

debt collections
debt collections

Aggressive debt collections techniques may force some into an insolvency filing

This would be the last step if any of the above options do not work for some of the 76% of Canadians with high debt levels who have not been able to improve their debt situation since the onset of COVID-19 cases. The purpose of this Brandon Blog is not to go into detail on the consumer proposal or bankruptcy processes. I have written many detailed blogs before on each of these insolvency processes. You can find them by using the search function at the top of this blog.

These two would be a great place for you to start:

Debt collections summary

Everyone is hoping that the negative effects of the coronavirus pandemic will soon be in our rearview mirror and Canada will experience continued growth. The article referred to at the beginning of this blog says that the experts feel that soon credit collectors will be increasingly active. You will start receiving those harassing phone calls again. They will be taking action from debt against you, which could even include legal action against you.

If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Call a Trustee Now!