Tag: Statistics Canada

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

Post author By Brandon Smith
Post date December 22, 2025

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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.

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.

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:

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.
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.
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.
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.

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.

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.

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.

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

——————————————————————————–

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.

Brandon Blog Post

CEBA LOANS & COMPANY INSOLVENCY: ESSENTIAL FACTS GTA ENTREPRENEURS NEED TO KNOW

Post author By Brandon Smith
Post date May 19, 2025

Company Insolvency Introduction

On a chilly night in early 2020, I remember getting a frantic email from a fellow entrepreneur—her café had just closed its doors indefinitely. The uncertainty in her voice mirrored what every small business owner across Canada felt: a silent panic about their limited company insolvency and that maybe, just maybe, their business wouldn’t make it to the other side. Then came the lifeline: the Canada Emergency Business Account (CEBA). But what seemed like a straightforward rescue turned out to be a maze of deadlines, fine print, ups and downs, and (frankly) some mind-boggling statistics. Here’s the backstage pass to what really happened, odd details and all.

In this Brandon’s Blog, I look at the CEBA and its statistics. CEBA was a monumental rescue for nearly 900,000 Canadian businesses. It ultimately became clear: while survival rates for CEBA recipients outperformed expectations, the true landscape was one of complexity, struggle, and —oddly enough — hopeful resilience.

Understanding Company Insolvency in the Post-Pandemic Era

As a licensed insolvency trustee serving businesses across the Greater Toronto Area, I’ve witnessed firsthand how the pandemic tested the financial resilience of local entrepreneurs. When COVID-19 hit in early 2020, business owners faced unprecedented challenges, with many teetering on the edge of company insolvency – a situation where a business can no longer meet its financial obligations.

What is Company Insolvency?

Company insolvency occurs when a business can’t pay its debts when they come due or when liabilities exceed assets. For GTA entrepreneurs, understanding the warning signs of company insolvency is crucial:

Consistently missing payment deadlines
Using personal funds to cover business expenses
Struggling to meet payroll obligations
Receiving collection notices from creditors
Declining sales without corresponding cost reductions

The CEBA Lifeline: A Double-Edged Sword

When the pandemic threatened thousands of GTA businesses with company insolvency, the CEBA emerged as a critical lifeline. Launched on March 27, 2020, CEBA offered up to $60,000 in interest-free loans with potential partial forgiveness.

CEBA by the Numbers:

Nearly 900,000 Canadian businesses received CEBA loans
Total funding reached approximately $49 billion
Construction companies received over $6.4 billion (13.1% of funds)
Client-facing industries had the highest uptake rates:
- Accommodation/food services: 83% uptake
- Arts/entertainment/recreation: 77.1% uptake

For many Toronto entrepreneurs who contacted my office, CEBA provided essential short-term relief from company insolvency. As one local restaurant owner told me,

“That loan was the only thing standing between our survival and shutting down permanently.”

The Repayment Reality and Growing Company Insolvency Concerns

While CEBA helped many businesses avoid immediate company insolvency, the repayment phase has proven challenging. The deadline extensions (from December 2022 to January 2024) highlight the ongoing financial strain many GTA businesses faced.

By January 2024, approximately 19% of CEBA loans ($9.2 billion nationally) remained unpaid. These unpaid loans were converted to 3-year, 5% interest loans without forgiveness options, creating new insolvency risks for already struggling businesses.

In my practice across the GTA, I’ve seen certain industries struggling more than others with repayment:

Transportation/warehousing: 30.7% of loans unpaid
Taxi services: 51.1% couldn’t repay
Accommodation/food services: 21.9% unpaid
Construction: 20.1% ($1.3B) outstanding

Company Insolvency: The Surprising Bankruptcy Trends

The data reveals a counterintuitive pattern that every GTA business owner should understand. When COVID first struck, business bankruptcies dropped from 400-450 quarterly filings in early 2020 to just 250 by Q3 2021.

This wasn’t because businesses were thriving – it was because government supports like CEBA were temporarily masking company insolvency issues.

By Q1 2024, we witnessed a dramatic surge in bankruptcy filings to over 1,200, nearly five times the pandemic lows. Two main factors drove this spike:

Expiring CEBA loan forgiveness deadlines
Rising interest rates have made refinancing difficult or impossible

What’s particularly telling is that about 70% of Q1 2024 bankruptcies involved businesses that had taken CEBA loans. Yet, looking at the bigger picture, only 0.7% of all CEBA borrowers went bankrupt compared to 1.3% of non-CEBA businesses.

Industry-Specific Company Insolvency Patterns in the GTA

For Toronto-area entrepreneurs, understanding which sectors face the highest company insolvency risk is crucial. The bankruptcy distribution wasn’t random:

Accommodation and food services: 20.3% of all CEBA bankruptcies
Retail trade: 13.7%
Construction: 11.8%
Transportation and warehousing: 7.6%

Between Q3 2023 and Q1 2024 alone, food service bankruptcies increased by an alarming 139.8%. This reflects the particular challenges restaurants and cafes in the GTA continue to face with reduced foot traffic in downtown areas and changing consumer habits.

Signs of Financial Distress That Your GTA Business May Be Heading Toward Company Insolvency

As a licensed insolvency trustee, I regularly help business owners recognize early warning signs of company insolvency:

Cash flow problems: Consistently struggling to pay bills on time
Increasing debt: Taking on new debt to pay existing obligations
Creditor pressure: Receiving demands or legal notices from suppliers
Declining sales: Persistent revenue drops without corresponding cost reductions
Personal guarantee concerns: Feeling anxious about personally guaranteed items.

Options for GTA Businesses Facing Company Insolvency

If your Toronto-area business is showing signs of financial distress, several options exist:

1. Informal Restructuring

Working directly with creditors to negotiate payment terms without formal legal proceedings.

2. Division I Proposal

A formal payment plan found in a legally binding agreement administered by a licensed insolvency trustee with creditors that allows your business the additional time needed to continue operating while paying a portion of the debts, with the balance being forgiven.

3. Corporate Bankruptcy

The formal bankruptcy process of liquidating company assets is used when restructuring isn’t viable. This is both a legal process and a financial one.

4. Strategic Wind-Down (Voluntary Liquidation) or Compulsory Liquidation

An orderly closure that minimizes losses and protects personal assets as best as possible.

Company Insolvency: The Future Outlook for GTA Businesses

Statistics Canada data shows 65.6% of businesses expect to fully repay their CEBA loans by the end of 2026. However, 14.5% anticipate falling short, potentially facing company insolvency. Nearly 20% remain uncertain about their financial future.

For GTA entrepreneurs, this uncertainty creates difficult decisions:

Repay CEBA or invest in necessary business improvements?
Upgrade equipment or prioritize debt reduction?
Hire needed staff or conserve cash for loan repayment?

Company Insolvency: Professional Guidance and Support

Importance of Professional Advisors

When facing company insolvency, many GTA entrepreneurs make the critical mistake of trying to solve complex financial problems alone. As someone who has guided hundreds of Toronto businesses through financial crises, I’ve seen how proper professional guidance can be the difference between business recovery and complete failure.

Professional advisors bring several key benefits when dealing with company insolvency:

Objective assessment: An outside expert can evaluate your situation without emotional attachment
Legal protection knowledge: Understanding which actions might create personal liability
Creditor negotiation skills: Experience in reaching favorable terms with creditors
Regulatory compliance: Ensuring all filings and procedures follow legal requirements

A recent study found that businesses seeking professional help within the first three months of financial distress were 65% more likely to survive than those waiting six months or longer. For GTA business owners, this early intervention can be particularly valuable in our competitive market.

Selecting a Licensed Insolvency Trustee

Not all financial advisors are equal when it comes to company insolvency matters. licensed insolvency practitioners are the only insolvency professionals authorized to file and manage insolvency proceedings in Canada. When selecting a Licensed Insolvency Trustee in the Greater Toronto Area, consider:

Experience with your industry: Find someone who understands the specific challenges of your business sector
Location and accessibility: Choose a Licensed Insolvency Trustee familiar with GTA business conditions and easily accessible for meetings
Communication style: Select someone who explains complex insolvency concepts in straightforward terms
Fee structure: Understand how the Licensed Insolvency Trustee charges for services and what’s included
Client testimonials: Look for reviews from other GTA business owners in similar situations

Remember that your initial consultation with a Licensed Insolvency Trustee is typically free and confidential. This meeting allows you to discuss your company insolvency concerns without obligation while getting expert insight into your options.

Leveraging Expertise for Strategic Planning

Working with a Licensed Insolvency Trustee offers more than just technical assistance with company insolvency procedures. The right advisor becomes a strategic partner in dealing with our company’s financial situation and planning your business’s future.

In my practice serving GTA entrepreneurs, I work with clients to:

Identify core business strengths that can form the foundation of a recovery plan
Analyze cash flow patterns to find opportunities for immediate improvement
Develop realistic financial projections based on current market conditions in Toronto
Create contingency plans for various economic scenarios
Establish monitoring systems to provide early warning of future insolvency risks

One Toronto insolvent business I worked with was able to transform a seemingly hopeless company insolvency situation into a streamlined, profitable business by implementing strategic changes identified during our planning sessions. The key was having expert guidance to distinguish between essential business components and areas that could be restructured or eliminated.

Your Licensed Insolvency Trustee can also coordinate with your other professional advisors—accountants, lawyers, business coaches—to ensure everyone is working cohesively toward your business goals while addressing immediate company insolvency concerns.

Taking Action: Steps for GTA Business Owners

If your business is struggling with potential company insolvency, consider these steps:

Seek professional advice early: Consult a licensed insolvency trustee for a free assessment
Review your financial statements: Understand your true financial position
Create a realistic cash flow projection: Map your business’s financial future
Consider all available options: Restructuring may be possible before bankruptcy becomes necessary
Protect personal assets: Understand your liability regarding business debts

Company Insolvency FAQ

1. What is company insolvency, and what are the signs to look for?

Company insolvency occurs when a business is unable to pay its debts when they are due, or when its liabilities exceed its assets. For entrepreneurs, crucial warning signs include consistently missing payment deadlines, using personal funds for business expenses, struggling to meet payroll, receiving collection notices, and experiencing declining sales without cost reductions.

2. How did government support programs like CEBA impact business bankruptcy rates?

Interestingly, business bankruptcies initially dropped during the height of the pandemic. This was not due to businesses thriving, but rather because government support programmes like CEBA temporarily masked underlying insolvency issues. Once CEBA repayment deadlines passed and interest rates rose, there was a dramatic surge in bankruptcy filings, reaching levels nearly five times the pandemic lows by Q1 2024.

3. Which industries have been most affected by company insolvency after the CEBA deadline?

Data indicates that certain sectors have struggled more with CEBA repayment and subsequent insolvency. Industries with high unpaid CEBA loan rates include transportation/warehousing (30.7% unpaid), taxi services (51.1% unpaid), accommodation/food services (21.9% unpaid), and construction (20.1% unpaid). The accommodation and food services sector, in particular, saw a significant increase in bankruptcies between Q3 2023 and Q1 2024.

4. What options are available for businesses facing company insolvency?

Businesses experiencing financial distress have several options, depending on their situation. These include informal restructuring (negotiating directly with creditors), filing a Division I Proposal (a formal debt repayment plan administered by a licensed insolvency trustee), corporate bankruptcy (liquidation of assets), or a strategic wind-down/voluntary liquidation.

5. Why is seeking professional help early crucial when dealing with company insolvency?

Seeking professional guidance from a licensed insolvency trustee early in the process significantly increases a business’s chances of survival. Licensed insolvency trustees can provide an objective assessment, knowledge of legal protections, experience in negotiating with creditors, and ensure regulatory compliance. Businesses that seek professional help within the first three months of distress are considerably more likely to recover.

6. What is the future outlook for businesses regarding CEBA repayment and insolvency?

While a majority of businesses anticipate fully repaying their CEBA loans by the end of 2026, a significant percentage still expect to fall short or remain uncertain about their financial future. This uncertainty forces businesses to make difficult decisions about prioritizing debt repayment versus investment and hiring. For many, company insolvency remains a real possibility, highlighting the ongoing economic challenges in the post-pandemic era.

Company Insolvency Conclusion: Learning from the CEBA Experience

The CEBA program provided crucial support to nearly 900,000 Canadian businesses during an unprecedented crisis. For many GTA entrepreneurs, it meant survival through the darkest days of the pandemic.

However, as repayment deadlines passed and economic challenges continue, we’re witnessing a complex landscape where company insolvency remains a very real threat for many local businesses.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of company insolvency and seeking professional advice early, many businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.

Tags bankruptcy process, canadian businesses, cash flow, ceba, Company assets, company insolvency, compulsory liquidation, financial distress, formal payment plan, insolvency proceedings, insolvency professional, insolvent business, insolvent businesses, Ira Smith Trustee, legal process, licensed insolvency trustee, restructuring process, Statistics Canada, voluntary liquidation

Brandon Blog Post

COMPANIES ARE DECLARING BANKRUPTCIES EVEN THOUGH THEY RECEIVED THE CANADA EMERGENCY BUSINESS ACCOUNT: LOANS, REPAYMENTS, AND BANKRUPTCIES

Post author By Brandon Smith
Post date February 24, 2025

declaring bankruptcies

Declaring Bankruptcies Introduction

Picture this: April 2020, and your small Canadian business survive on thin margins. Suddenly, a global pandemic hits, lockdowns ensue, and your revenue disappears overnight. Then, a lifeline appears in a twist of fate: the Canada Emergency Business Account (CEBA).

On February 18, 2025, Statistics Canada released an economic paper written by Sean Clarke, Jasper Hui, and Dave Krochmalnek, “Borrowing, repayments and bankruptcies by industry: Results from the Canada Emergency Business Account program”. This post explores how this initiative influenced many businesses’ trajectories – some soared, while others crumbled under new pressures as the pandemic’s aftermath unfolded forcing many declaring bankruptcies.

Declaring Bankruptcies: Understanding CEBA – Lifesaver or Temporary Relief?

The CEBA was introduced to help small and medium enterprises (SMEs) during the COVID-19 pandemic. But what exactly does this mean for you? CEBA aimed to provide interest-free loans to businesses struggling to survive the economic fallout. With a staggering $49 billion allocated to various sectors, it was a significant lifeline for many. But was it enough?

Overview of CEBA and Its Objectives

CEBA was designed to assist businesses in covering essential operational costs. The loans, which could reach up to $60,000 per Canadian business, were intended to keep the doors open during the toughest times. Think of it as a safety net. But how effective was this net in catching those who fell?

Total funding: $49 billion
Maximum loan per business: $60,000

Total Funding	Maximum Loan per Canadian Business
$49 billion	$60,000

The Definition of Client-Facing Industries

Client-facing industries are sectors that directly interact with customers. This includes accommodations, food services, and transportation. These industries were hit hard during the pandemic. Imagine a restaurant forced to close its doors. The impact was immediate and severe. Output in these sectors dropped between 30% and 60% during the initial lockdowns. How could they survive without support?

In contrast, industries like construction and retail rebounded more quickly. Construction even saw a boom due to increased demand for single-family homes. This disparity raises questions about the fairness of the support provided. Why did some sectors receive more funding than others?

How CEBA Disbursement Shaped Business Survival

CEBA’s disbursement was crucial for many businesses. As one expert noted,

“CEBA was a crucial bridge for many businesses caught in the pandemic’s storm.”

This statement encapsulates the essence of the program. It was a bridge, but was it strong enough to support all who relied on it?

While many businesses managed to repay their loans, a significant portion—about 18.8%—remained outstanding by the forgiveness deadline. This translates to approximately $9.2 billion still owed. Instead of being forgiven, these loans transitioned into three-year term loans at a 5% interest rate. For businesses already struggling, this new burden was daunting.

Some sectors faced even higher rates of outstanding loans. For instance, the transportation and warehousing industry had 30.7% of loans outstanding. Accommodation and food services were not far behind at 21.9%. Even construction, which seemed to recover quickly, had 20.1% of loans still outstanding. This paints a picture of a complex recovery landscape.

It’s essential to evaluate the overall effectiveness of CEBA. Did it truly save businesses, or just delay the inevitable? The number of companies declaring bankruptcies decreased initially, likely due to government interventions like CEBA. However, as time passed and economic conditions changed, bankruptcy filings surged. By early 2024, over 1,200 businesses declared bankruptcy, many of which had received CEBA loans.

This situation raises critical questions. Did CEBA merely mask deeper vulnerabilities in the economy? The interconnected nature of these economic factors is evident. While CEBA provided immediate relief, the long-term implications remain uncertain.

CEBA was a significant initiative at supporting SMEs during an unprecedented crisis. However, the varying impacts across industries and the subsequent challenges faced by many businesses highlight the complexities of economic support measures. As we continue to navigate these waters, understanding the full scope of CEBA’s impact is essential for future economic resilience.

Declaring Bankruptcies: Diving into the Discrepancies – Who Benefited Most?

When we look at the impact of the CEBA program, it’s clear that not all industries were created equal. Some sectors thrived while others struggled. Why is that? Let’s dive into the numbers and uncover the surprising disparities in funding allocations and the reasons behind them.

Comparison of Industry Sectors

First, let’s consider the sectors that fared differently during the pandemic. The client services industry, which includes accommodations, food services, and transportation, saw a staggering drop of 30% to 60% in output during the initial lockdowns. That’s a significant hit! On the other hand, industries like manufacturing bounced back much quicker. In fact, construction even experienced a boom due to increased demand for single-family homes.

It’s fascinating to see how these differences played out in funding. Construction received a whopping $6.4 billion from CEBA, which is about 13% of the total funding. This is surprising, especially considering that construction was recovering faster than many other sectors. Why did they get such a large slice of the pie?

Surprising Funding Allocations

To put things into perspective, let’s look at the funding allocations:

Construction: $6.4 billion
Professional Services: $5.5 billion
Retail Trade: $4.6 billion
Transportation and Warehousing: $4.1 billion

These numbers reveal a clear trend. The sheer number of businesses in the construction sector likely allowed more companies to qualify for CEBA loans. But what about the service industries? They faced deeper impacts and yet received less funding overall.

Reasons Behind the Disparities

So, what explains these disparities in loan distribution? One reason is the nature of the businesses themselves. The hardest-hit sectors also had a higher rate of outstanding loans. For instance, the transportation and warehousing industry had 30.7% of loans still outstanding, while accommodation and food services faced a rate of 21.9%. Even construction had 20.1% of its loans outstanding, indicating that not all businesses in recovering sectors were out of the woods.

As you can see, the funding landscape is complex. While some sectors received substantial support, others were left to fend for themselves. This raises important questions about the effectiveness of such programs. Are they truly helping those in need, or are they simply delaying the inevitable for some businesses?

As we explore the outcomes of the CEBA program, it’s crucial to consider the broader implications. The differences in funding allocations and the varying impacts on different sectors highlight the need for tailored economic support strategies. Understanding these nuances can help us navigate future economic challenges more effectively.

Declaring Bankruptcies Trends: The Consequences of CEBA

The CEBA was a lifeline for many businesses during the pandemic. It provided essential financial support when the world was in turmoil. But what happened after the loan forgiveness deadline? This question is crucial as we analyze the trends in corporate bankruptcies that emerged in the wake of CEBA.

Initial Effects of the Loan Forgiveness Deadline

When the loan forgiveness deadline approached, many businesses faced a harsh reality. A staggering 18.8% of CEBA loans remained outstanding. This meant that instead of being forgiven, these loans transformed into three-year term loans with a 5% interest rate. For businesses already struggling, this was like adding fuel to a fire.

Imagine running a small restaurant. You relied on that loan to keep your doors open during lockdowns. Now, you have to pay it back with interest. How do you manage that when customers are still hesitant to return? This scenario played out in many sectors, particularly those that were client-facing.

Rising Bankruptcy Rates in Various Sectors

As we moved into early 2024, bankruptcy rates surged. In the first quarter alone, there were 12,000 bankruptcies. Alarmingly, 39% of these corporate bankruptcies involved businesses that had taken CEBA loans. The ticking time bomb of conversion to debt ultimately revealed serious vulnerabilities in many businesses once they started incurring CEBA debt service costs.

Accommodation and food services were hit hardest, accounting for 20.3% of bankruptcies among CEBA participants.
Retail trade and construction followed, with 13.7% and 11.8% respectively.

These numbers paint a grim picture. The pandemic had already decimated many businesses. Now, the added burden of repaying loans pushed some over the edge. It’s like trying to swim with weights tied to your ankles. You can only struggle for so long before you sink.

Impact of Economic Conditions Post-Pandemic

The economic landscape post-pandemic was anything but stable. Rising interest rates and escalating input costs created a perfect storm. Businesses that had managed to survive the initial lockdowns now faced new challenges. The combination of these factors led to a significant increase in declaring bankruptcies.

In fact, the report indicates that while bankruptcy rates initially decreased during the pandemic, they reversed course in mid-2022. This shift coincided with the looming deadline for loan forgiveness. As businesses scrambled to adapt, many found themselves unable to cope with the financial strain.

Consider the transportation and warehousing industry. They had a staggering 30.7% of loans outstanding. Even sectors that seemed to recover quickly, like construction, faced challenges. About 20.1% of construction businesses still had loans outstanding. This suggests that the recovery was not uniform across industries.

As you reflect on these trends, it’s clear that the CEBA program had both positive and negative effects. While it provided immediate relief, the long-term consequences are now unfolding. Businesses are left grappling with financial obligations, and the economic recovery remains fragile.

In summary, the consequences of CEBA are complex. The initial relief provided by the loans has transitioned into a burden for many. As bankruptcy rates rise, it’s essential to understand the interconnected nature of these economic factors. The pandemic has left its mark, and the path to recovery is fraught with challenges.

The Ripple Effect: Beyond Declaring Bankruptcies

The economic landscape has changed dramatically in recent years. The COVID-19 pandemic shook businesses to their core. Many faced unprecedented challenges. But what happens when the dust settles? What are the long-term implications of the support provided, like the Canada Emergency Business Account (CEBA)? Let’s dive into the ripple effects of these financial lifelines.

1. Long-Term Economic Implications

When we think about the CEBA program, we often focus on immediate relief. However, the long-term effects are just as crucial. Businesses received interest-free loans, but at what cost? The loans were meant to provide a safety net, yet they may have created a larger debt burden. This can stifle growth in the long run.

Debt Burden: Many businesses now face significant repayments. This can limit their ability to invest in growth.
Market Dynamics: With rising debt, companies may become more risk-averse, avoiding new ventures.
Sector Disparities: Some industries, like construction, received more funding but recovered faster. Others, like food services, are still struggling.

It’s essential to ask: Are we setting businesses up for success or failure? The answer may lie in how these loans are managed in the future.

2. The Impact of Rising Inflation and Interest Rates

Inflation and interest rates are like the weather—unpredictable and often harsh. As inflation rises, so do costs for businesses. This can squeeze profit margins. Additionally, interest rates have been climbing, making it harder for companies to manage their debt.

Cost of Goods: Rising prices can lead to increased operational costs.
Loan Repayments: Higher interest rates mean higher repayments. This can be a heavy burden putting pressuer on being able to repay both secured creditors and unsecured creditors.
Consumer Behaviour: As costs rise, consumers may cut back on spending, affecting sales.

As one expert put it,

“It’s a complex interplay of factors—like juggling flaming swords while riding a unicycle through a storm.”

This analogy perfectly captures the precarious balance businesses must maintain.

3. Vulnerability in Businesses Pre- and Post-Pandemic

The pandemic revealed vulnerabilities in many businesses. Some were already struggling before COVID-19 hit. The support from CEBA helped, but it also masked deeper issues. Now, as the economy shifts, these vulnerabilities are resurfacing.

Pre-Pandemic Weakness: Many businesses were operating on thin margins. The pandemic exposed these weaknesses.
Post-Pandemic Recovery: As the economy reopens, businesses must adapt. Those that don’t may face business bankruptcy.
CEBA Recipients vs. Non-Recipients: Interestingly, CEBA participants had a bankruptcy rate of 0.7% compared to 1.3% for non-participants. This shows that support can make a difference, but it’s not a cure-all.

As we analyze the data, it’s clear that while CEBA provided immediate relief, it also created a new set of challenges. Businesses are now navigating a complex landscape of debt, rising costs, and changing consumer behavior.

The ripple effects of the CEBA program are profound. The long-term economic implications, the impact of rising inflation and interest rates, and the vulnerabilities exposed during the pandemic all intertwine. As businesses continue to adapt, they must find ways to manage their debts while also investing in future growth. The journey ahead is uncertain, but understanding these factors will be crucial for navigating the new economic reality.

A Cautious Path Forward: Lessons Learned

The COVID-19 pandemic has left many businesses grappling with vulnerabilities. As we reflect on the lessons learned from the CEBA program, it’s essential to consider how we can move forward. What can we take away from this experience? How can we ensure that future financial programs are more effective and sustainable?

Takeaways for Future Financial Programs

First and foremost, we need to recognize that not all businesses are created equal. Different industries have different needs. The CEBA program provided crucial support, but it also highlighted the disparities in recovery among sectors. For instance, while construction thrived, accommodations and food services struggled. This brings us to a vital takeaway: future financial programs must be tailored to the specific needs of industries.

Understand industry-specific needs: Programs should be designed with a clear understanding of the unique challenges faced by different sectors.
Flexibility is key: Financial support should be adaptable, allowing businesses to pivot as conditions change.
Monitor outcomes: Regular assessments can help identify which programs are working and which are not.

The Importance of Targeted Support

Targeted support is crucial for effective recovery. The CEBA program showed us that blanket solutions often miss the mark. For example, many businesses in the transportation and warehousing sector faced significant challenges, with 30.7% of loans remaining outstanding. This indicates that a one-size-fits-all approach can lead to unintended consequences.

As we move forward, we must ask ourselves: How can we provide support that truly meets the needs of businesses? The answer lies in targeted interventions. By focusing on specific sectors, we can ensure that resources are allocated where they are needed most.

Looking Ahead to Sustainable Recovery Strategies

Looking ahead, sustainability in economic recovery is paramount. As the quote goes,

“Sustainability in economic recovery depends on a nuanced understanding of industry needs and vulnerabilities.”

This means that recovery strategies must be holistic and context-sensitive. We need to consider not just immediate relief but also long-term resilience.

Some strategies to consider include:

Investing in training and development: Equip businesses with the skills they need to adapt to changing markets.
Encouraging innovation: Support businesses in developing new products or services that meet emerging demands.
Building partnerships: Foster collaboration between businesses, government, and community organizations to create a supportive ecosystem.

The lessons learned from the CEBA experience are invaluable. We must embrace a more nuanced approach to financial support, one that recognizes the unique challenges faced by different industries. By focusing on targeted support and sustainable recovery strategies, we can help businesses navigate the complexities of the post-pandemic landscape. The road ahead may be cautious, but with the right strategies in place, we can foster resilience and ensure a brighter future for all. Remember, the key to successful recovery lies in understanding the diverse needs of our economy and responding accordingly.

Declaring Bankruptcies: CEBA FAQ

What was the purpose of the Canada Emergency Business Account (CEBA) program?

The CEBA program was introduced by the Government of Canada on March 27, 2020, to provide interest-free loans to eligible small and medium-sized businesses to help cover their operating costs during the COVID-19 pandemic. The loans were up to $60,000, with a portion (up to one-third) forgivable if repaid by a set deadline. The aim was to help businesses maintain solvency and operations during a period of significant economic disruption.

Which industries received the most CEBA funding and why?

The construction industry received the most CEBA funding, totaling over $6.4 billion (13.1% of total loan disbursements), largely distributed among residential building construction businesses, building equipment, and building finishing contractors. This was partly due to the high number of legal entities within the construction sector. Client-facing service industries such as professional, scientific, and technical services; retail trade; transportation and warehousing; and accommodation and food services also received significant funding because they were among the most severely impacted by public health restrictions and disruptions to traditional business operations.

What were the repayment terms and deadlines for CEBA loans?

The original repayment deadline to qualify for partial loan forgiveness was December 31, 2022. This was extended to December 31, 2023, and then again to January 18, 2024. If the loan was not repaid by this final deadline, the outstanding balance was converted into a three-year term loan, subject to an interest rate of 5% per annum, with the loan forgiveness option no longer available. The final repayment date for these term loans is December 31, 2026.

Which industries had the highest rates of outstanding CEBA loans after the repayment deadline?

Industries that were hardest hit by pandemic-related lockdowns and experienced slower recoveries tended to have the highest rates of outstanding CEBA loans. These included transportation and warehousing (30.7% outstanding), administrative and support, waste management and remediation services (22.7% outstanding), accommodation and food services (21.9% outstanding), and construction (20.1% outstanding). These sectors often faced prolonged disruptions and financial pressures, making it difficult to repay loans by the deadline.

How did bankruptcies among CEBA borrowers change during and after the pandemic?

Business bankruptcies initially declined in the first half of the pandemic but began to accelerate in mid-2022, reaching a high in the first quarter of 2024, coinciding with rising interest rates, elevated input costs, and the end of the CEBA program forgiveness period. The proportion of bankrupt businesses that had taken out CEBA loans increased from 39% in the first quarter of 2021 to 70% in the first quarter of 2024. After this acute period, bankruptcies dropped sharply over the remainder of 2024.

Which industries saw the most bankruptcies among businesses that had received CEBA loans?

The accommodation and food services industry accounted for the largest share of bankruptcies among CEBA borrowers (20.3%), with full-service restaurants and limited-service eating places being particularly affected. Retail trade (13.7%) and construction (11.8%) also had significant proportions of CEBA borrowers declaring bankruptcy.

What were the overall bankruptcy rates for CEBA borrowers compared to non-borrowers?

Of the 898,271 CEBA borrowers, 6,343 (0.7%) eventually declared bankruptcy by the end of September 2024. In contrast, the overall bankruptcy rate for all businesses between the second quarter of 2020 and the third quarter of 2024 was 0.9%, and for businesses that did not take CEBA loans, the bankruptcy rate was 1.3%. This suggests that while many CEBA borrowers did face bankruptcy, their overall rate was lower than that of businesses that did not receive CEBA support.

What were the expectations of businesses regarding their ability to repay outstanding CEBA loans?

According to Statistics Canada’s Survey on Business Conditions, nearly two-thirds (65.6%) of businesses with outstanding CEBA loans anticipated having the liquidity or access to credit to repay the loan by December 31, 2026. However, approximately one-fifth (19.9%) were uncertain about their ability to repay, and 14.5% did not expect to have the necessary liquidity or credit access, indicating that repayment challenges persisted for a significant minority of businesses.

Declaring Bankruptcies Conclusion

The CEBA provided crucial financial lifelines to many businesses during the COVID-19 pandemic. However, disparities in funding distribution and subsequent declaring bankruptcies highlight a complex economic landscape that continues to evolve. Don’t let the storm of bankruptcy catch you off guard. Take proactive measures now, and you may find yourself on the path to recovery.

I hope you enjoyed this declaring bankruptcies Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing as your alternative to bankruptcy. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.

Brandon Blog Post

CONSUMER DEBT: OUR COMPREHENSIVE GUIDE HELPING YOU NAVIGATE THE EMOTIONAL WATERS

Post author By Brandon Smith
Post date November 25, 2024

Consumer debt: Introduction

Every day, I encounter people—both consumers and entrepreneurs—who are wrestling with the ever-looming shadow of financial anxiety. You know the type: those who can’t remember the last time they had a peaceful night’s sleep, thanks to the chorus of bills and debts serenading them from their nightstands.

This personal rollercoaster got me curious about the tangled web between debt and our mental sanity. Debt is not just a financial issue; it’s intertwined with our mental health. Understanding this connection and seeking support can significantly improve our overall well-being.

Over the past two and a half years, I’ve penned several cheeky blogs on this very subject, including:

HEAL YOUR FINANCIAL HEALTH, HEAL YOUR MIND: A COMPREHENSIVE GUIDE TO FINANCIAL RECOVERY AND MENTAL WELL-BEING

UNDERSTANDING AND OVERCOMING FINANCIAL STRESS: A COMPREHENSIVE GUIDE TO GET FROM WORRIED TO WELL-PREPARED

THE HIDDEN EFFECTS OF FINANCIAL STRESS: WHAT YOU NEED TO KNOW

WHAT PERCENTAGE OF ILLNESSES ARE DIRECTLY OR INDIRECTLY CAUSED BY FINANCIAL STRESS? FINANCIAL STRESS IS THE MOST COMMON OF ALL TRIGGERS

My interest in this topic led me to look into a recent study that revealed some concerning statistics about financial stress. What I found was both enlightening and relatable for many individuals we have assisted.

In this edition of Brandon’s Blog, you can explore our detailed guide on navigating the emotional challenges of consumer debt. We cover the current state of consumer debt in Canada, highlighting troubling statistics and the psychological impacts like anxiety and depression that often come with it. We’ll help you recognize the signs of stress related to debt and provide practical tips such as financial self-care, budgeting strategies, and effective repayment methods.

Remember, you don’t have to face this journey alone—seek professional help if needed. If you’re feeling overwhelmed by debt, we encourage you to contact us for a free consultation at Ira Smith Trustee & Receiver Inc. Visit our website for more resources.

What is Consumer Debt?

As a Canadian licensed insolvency trustee, I’ve seen firsthand the impact that consumer debt can have on individuals and families. But what exactly is consumer debt, and how does it affect Canadians?

Definition of Consumer Debt

Consumer debt refers to the money borrowed by individuals to finance everyday expenses, purchases, and activities. This type of debt is typically unsecured, meaning it’s not backed by collateral such as a home or car. Common examples of consumer debt credit products include:

Credit card debt
Personal loans
Lines of credit
Student loans
Payday loans
Mortgages

Types of Consumer Debt

There are several types of consumer debt that Canadians may encounter. Some of the most common include:

Revolving debt: This type of debt, such as credit card debt, allows borrowers to continue making purchases and accumulating debt as long as they make minimum payments.
Installment debt: This type of debt, such as personal loans, auto loans or mortgages, requires borrowers to make fixed payments over a set period.
Open-ended debt: This type of debt, such as lines of credit or credit cards, allows borrowers to borrow and repay funds as needed.

The Consequences of Consumer Debt

Consumer debt can have serious consequences for individuals and families. Some of the most common include:

High interest rates: Consumer debt often comes with high interest rates, which can make it difficult for borrowers to pay off their debt.
Overwhelming financial stress: The pressure to make payments on time can lead to financial stress, anxiety, and depression.
Damage to credit scores: Missed payments and high debt levels can negatively impact credit scores, making it harder to secure loans or credit in the future.
Legal action: In severe cases, consumer debt can lead to legal action, such as wage garnishment or property seizure.

Seeking Help for Consumer Debt

If you’re struggling with consumer debt, it’s essential to seek help as soon as possible. As a licensed insolvency trustee, I can help you develop a personalized plan to manage your debt and achieve financial freedom. Whether you’re considering bankruptcy, a consumer proposal, or debt consolidation, I’m here to guide you every step of the way.

Current Trends in Consumer Debt in Canada

I’ve seen a significant shift in the consumer debt landscape over the past few years. Rising costs of living, economic pressures, and increased delinquencies are all contributing to a perfect storm of debt for many Canadians. In this section, we’ll explore the current trends in consumer debt in Canada and what they mean for individuals and families.

Rising Cost of Living

The cost of living in Canada has been increasing steadily over the past decade, with no signs of slowing down. From housing costs to food prices, transportation, and healthcare, the expenses are adding up. According to Statistics Canada:

From 2015 to 2019, inflation remained relatively stable, averaging around 1.5-2% annually.
In 2020, inflation dropped to 0.72% due to the economic impact of the COVID-19 pandemic.
Inflation then rose sharply, reaching 3.4% in 2021 and peaking at 6.8% in 2022.
As of September 2024, the annual inflation rate has moderated to 1.6%, the lowest since February 2021.

This means that many Canadians are struggling to make ends meet, leading to increased debt and financial stress.

Economic Pressures on Consumers

The economic landscape in Canada is also having a significant impact on consumer debt. The COVID-19 pandemic has led to widespread job losses, reduced hours, and reduced income for many Canadians. This has resulted in increased financial stress, as individuals and families struggle to make ends meet. According to a recent study, 50% of Canadians are living paycheque to paycheque, with 22% saying they would struggle to cover a $500 emergency expense.

Increased Delinquencies

The combination of rising costs of living and economic pressures has led to a significant increase in delinquencies across Canada. According to Equifax, the number of Canadians with delinquent debt has risen by over 10% in the past year alone. This is particularly concerning, as delinquencies can have serious consequences for individuals and families, including damage to credit scores, legal action, and even bankruptcy.

Demographic Trends

Certain demographics are particularly vulnerable to the rising tide of consumer debt. For example:

Young adults (18-34) are more likely to be struggling with debt, with 62% of this age group reporting debt stress.
Low-income households are more likely to be living paycheque to paycheque, with 55% of Canadian households earning less than $40,000 per year reporting financial stress.
Single parents are more likely to be struggling with debt, with 71% of single parents reporting debt stress.

What Can Be Done?

So, what can be done to address the rising tide of consumer debt in Canada? As a licensed insolvency trustee, I believe that education and awareness are key. By understanding the root causes of debt and the consequences of not addressing it, individuals and families can take proactive steps to manage their debt and achieve financial freedom.

Additionally, policymakers and financial institutions can play a critical role in addressing consumer debt. This includes implementing policies to reduce the cost of living, providing support for low-income households, and offering debt counselling and education programs.

Factors Contributing to High Consumer Debt

It’s a feeling known all too well—those sleepless nights consumed by anxiety about debt. The clock ticks away, and all you can think about are the bills piling up. Does that sound familiar? You are not alone in this struggle. A staggering 91% of individuals express moderate to extreme stress related to their debt.

The Age Factor

Interestingly, most of those affected fall within the age group of 35-64 years. These years are crucial for many of us, balancing work responsibilities with family needs. It’s no surprise that the pressures of life can weigh heavily on our minds.

Over 600 individuals participated in a recent survey.
The predominant professions impacted relate to healthcare and social assistance.
Transactional responsibilities stack up as professionals strive to care for others.

Among these professions, it’s heartbreaking to see dedicated healthcare workers experiencing financial difficulties. After all, shouldn’t those who care for us be less burdened by financial woes?

Debt and Emotional Distress

“Debt can feel like a weight that never lifts, affecting every aspect of life.”

This quote resonates deeply with many. The connection between financial strain and emotional well-being is alarmingly clear. For many, the overwhelming financial burden can lead to feelings of isolation or stress. It’s no wonder that 68% of those surveyed reported carrying significant debt—over $20,000 in many cases.

Understanding the Reasons

What drives this financial struggle? A variety of factors come into play. The survey identified:

Job loss or income reduction—cited by 44%.
Living beyond means, acknowledged by 42%.
High housing market costs affect 26%.

These struggles don’t just put a dent in finances. They seep into every facet of our lives, impacting sleep, health, and relationships.

Visualizing the Stress

When we look at the data surrounding stress and debt, the picture becomes clearer. Here’s a simple chart to illustrate the emotional impact:

Group	Percentage
Experience Moderate to Extreme Stress from Debt	91%
Majority in Healthcare and Social Assistance	Majority

These figures highlight a significant concern in our society—especially as the very individuals responsible for caring for others face mounting financial pressures. We must acknowledge these disparities in both personal and professional settings.

The Root Causes of Consumer Debt: More Than Just Overspending

When we think about debt, many of us might immediately imagine reckless spending. But what if I told you that overspending is just the tip of the iceberg? Recent research sheds light on some surprising facts that might change how we view personal debt.

Primary Causes of Debt

According to this recent study, the leading causes of debt aren’t always what you would expect. Here are some key findings:

Job loss/reduction in income: Cited by a staggering 44% of respondents as the primary cause of their debt. This shows just how fragile our financial situations can be.
Living beyond means: An astonishing 42% admitted to overspending, which often leads to debt spirals. It’s scary how quickly small costs can add up.
Housing costs: 26% pointed to high housing costs as a significant challenge. Rent and mortgages can consume a large portion of our income.

Putting it all together, it’s clear that a combination of these factors plays a significant role in creating financial struggles. This indicates that debt isn’t just a personal failing. It’s often influenced by systemic issues around us.

The Overlooked Emotional Burden

Have you ever felt isolated because of your financial situation? You’re not alone. The same study found that 30% of respondents mentioned feeling alone due to their debt struggles. That’s a significant emotional toll!

“Financial strain isn’t just about bad choices; it often stems from inevitable life circumstances.”

Doesn’t this resonate? It emphasizes how we often forget the multifaceted nature of debt. Many factors, including economic instability and job insecurity, weigh heavily on our mental health.

Tackling the Stigma

It’s easy to blame individuals for their financial woes. However, understanding these root causes can shift our perspective. People often face circumstances beyond their control. The stigma attached to overspending can make it hard for people to reach out for help.

Addressing these issues isn’t merely about personal choices; it’s about recognizing the broader economic forces at play. I’m hopeful that by discussing these topics, we can foster greater understanding and support for those affected by debt.

As we navigate through our finances, let’s remember: that counsellingpersonal choices matter, but circumstances often shape our decisions. We must be compassionate towards others and ourselves in this complex financial landscape.

Coping Mechanisms and Strategies for Managing Consumer Debt: Finding Your Way Through the Fog

We all know that money can be a source of stress. Have you ever laid awake at night, weighing bills against your dwindling bank account? Most people have at one stage or another. The anxiety about financial matters can easily cloud our minds, affecting sleep, work, and even relationships. In exploring these feelings, it’s clear that many of us are not alone. Over 91% of people report experiencing stress due to debt, according to a recent survey.

Finding Balance: Financial and Emotional Health

The intricate relationship between financial strain and emotional well-being is powerful. For instance, I found out that 55% of people have taken a proactive approach by creating strict budgets to handle their expenses. Budgeting is like being a captain of your ship—you’re charting a course through stormy seas. It keeps you grounded and helps you reach safer shores.

Many individuals also turned to professionals for help. Approximately 48% consulted licensed insolvency trustees to navigate the complex waters of debt management. Seeking help is not a sign of weakness; it’s a courageous step toward recovery.

“Taking control of finances starts with understanding where you stand.”

Understanding the Data

We need to take a moment to understand the numbers behind our struggles:

Financial Strategy	Percentage
Implemented strict budgeting	55%
Struggled with insomnia due to debt	52%

This table reveals more than just numbers—it highlights the sheer impact of financial stress. Most notably, 52% of individuals reported struggling with insomnia related to their debt. This overlap is a wake-up call for each of us.

Coping Strategies: Proactive vs. Reactive

As I reflect on these figures, it becomes clear that coping strategies vary. Some people adopt a proactive approach, like budgeting. Others might respond reactively to ongoing stress, often leading to potential burnout.

Proactive Strategies:
- Implementing strict budgets
- Prioritizing Debt Repayments
- Exploring Debt Consolidation Options
- Seeking help from professionals such as a credit counsellor or licensed insolvency trustee.
Reactive Strategies:
- Resorting to isolation.
- Neglecting mental health.

We tend to overlook mental health awareness in financially stressed populations. Yet, the discussion surrounding this topic is essential. Reportedly, 97% of those surveyed had no knowledge of support services for financial stress. Imagine the difference that education could make!

We’re not just facing challenges; we’re fighting to reclaim our peace of mind. By discussing our financial journeys, we can illuminate the path for others who feel lost in the fog. Is there a strategy you’ve implemented that has worked for you?

The Dark Side of Debt: Unhealthy Coping Strategies

Debt can feel like a shadow, lurking in every corner of our lives. Have you ever laid awake at night, your mind racing with worries about bills? You’re not alone. A staggering 52% of people suffering from debt report struggling with sleep. It’s alarming how this financial stress impacts our physical and mental health.

Understanding the Impact

When we think about debt, we often consider the financial aspects first. However, the reality is much broader. Money troubles seep into our lifestyle and health. Here are some facts that might resonate:

30% of individuals turn to isolation, avoiding friends and outings due to financial worries.
44% experience changes in their eating patterns, often leading to unhealthy choices.
Shockingly, a vast 97% of people are unaware of the mental health support services available to help them cope with financial stress.

As I dive deeper into these statistics, I can’t help but feel how insidious debt can be. In fact, it seems to breach not only finances but also our emotional well-being.

“Debt has a way of creeping into every aspect of life, including your health and happiness.”

Breaking Down the Stress

So, what exactly leads to such disheartening statistics? Many might think the main culprit is overspending, but job loss or a reduction in income accounts for 44% of debt-related issues. As I reflect on this, it makes sense—those of us facing uncertain economic times often find ourselves in financial traps.

The Human Cost of Coping

The coping strategies people adopt can sometimes be harmful. Here’s a deeper look:

While budgeting (made popular by about 55%) offers a solution, it represents just one way to cope.
Isolation and unhealthy food choices create more significant issues than they address.

As we recognize these patterns, it’s clear that the hidden costs of dealing with debt are immense. The emotional toll taken by financial stress can be debilitating.

Addressing the Stigma

We must discuss these struggles. The stigma around mental health, especially when intertwined with finances, can prevent us from reaching out. Imagine facing an uphill battle while feeling you can’t talk to anyone. We must normalize these discussions.

Awareness is key. Understanding that help exists outside of our immediate surroundings can change the narrative for many. This isn’t merely about managing debt—it’s about reclaiming our mental well-being.

In sum, life with debt can feel like a never-ending cycle of stress. Recognizing the unhealthy coping mechanisms I’ve shared is the first step in breaking that cycle. Here’s hoping we all find healthier paths amidst financial challenges.

A Path to Recovery: Transformation Through Seeking Help

Life can be a winding road. Along that road, many of us face unexpected hurdles. One significant challenge is debt. It’s not just about numbers, but how it affects us mentally and emotionally. Well, did you know that there are real success stories out there? After the insolvency process, such as bankruptcy or consumer proposal, many individuals have emerged stronger. An astounding 63% reported noticeable improvements in their mental health.

Success Stories: The Road to Recovery

Some people refer to an insolvency filing as a way out. It’s become a pathway to freedom for many. Imagine waking up one day to find that your debt is reduced to below $10,000 through a consumer proposal. This transformation not only results in financial stability but also enhances overall well-being. Isn’t it encouraging to hear such success stories? These individuals dared to seek help, and their courage paid off.

The Hidden Burden of Financial Distress

However, we must discuss systemic issues that contribute to financial distress. The numbers tell a story. The leading reasons for falling into debt often stem from job loss or reduced income. It’s not that people are reckless; it’s the circumstances that lead them to this point. And when financial strain hits, the emotional toll can be overwhelming.

Help-Seeking: A Sign of Strength

We often hear about the stigma surrounding asking for help.

“Asking for help is not a sign of failure; it’s a testament to your courage to change.”

In today’s world, reaching out is essential. Seeking assistance from licensed insolvency trustees can guide individuals through complex financial waters. So, let’s talk about how powerful it is to recognize the need for support.

The Longer View: Mental Health Benefits

The journey toward financial recovery often brings hidden benefits. Addressing these financial issues can lead to long-lasting mental health improvements. With 63% reporting better mental health after their debt challenges were met head-on, it’s clear that a brighter future exists beyond the struggles.

In summary, the relationship between debt and mental well-being is intricate. More than just financial burdens, they shape our everyday lives. There’s hope in the stories of recovery. Individuals can overcome their situations while we emphasize that seeking help can be one of the strongest things you can do. The road to recovery may be challenging, but it’s a road worth taking.

Visual Representation of Impact

Outcome	Percentage
Reduced Debt Below $10,000	Varies by individual stories
Mental Health Transformation	63% successfully improved

Consumer Debt and Mental Health: FAQs

1. What is consumer debt and what are its most common types?

Consumer debt refers to money borrowed by individuals to cover everyday expenses and purchases. It is generally unsecured, meaning it’s not backed by collateral like a house or a car. Common types include:

Revolving debt: This allows ongoing borrowing and repayment, such as credit cards and lines of credit.
Instalment debt: Involves fixed payments over a predetermined period, such as personal loans, auto loans, and mortgages.
Open-ended debt: Offers flexibility in borrowing and repayment amounts, like lines of credit and credit cards.

2. What are the major contributing factors to high consumer debt in Canada?

Several factors contribute to rising consumer debt:

Rising cost of living: Increasing expenses on essentials like housing, food, and healthcare make it difficult to manage finances.
Economic pressures: Job losses, reduced income, and economic uncertainty during events like the COVID-19 pandemic add to financial strain.
Overspending and living beyond means: This can quickly lead to debt accumulation, especially with easy access to credit.

3. How does consumer debt impact mental well-being?

Debt can have a significant impact on mental health:

Stress and anxiety: Constant worry about bills and repayments can lead to overwhelming stress, anxiety, and sleep disturbances.
Depression and isolation: Financial struggles can trigger feelings of hopelessness, depression, and social isolation.
Unhealthy coping mechanisms: Some individuals might resort to unhealthy coping mechanisms like overeating, substance abuse, or social withdrawal.

Be mindful of these signs:

Difficulty sleeping or insomnia due to financial worries.
Increased anxiety and irritability, often stemming from financial pressure.
Changes in appetite or eating habits, either overeating or undereating due to stress.
Social withdrawal and isolation, avoiding social events due to financial constraints.

5. What are some proactive strategies for managing consumer debt?

Take control of your finances with these steps:

Create a strict budget: Track your income and expenses to identify areas where you can cut back and save.
Prioritize debt repayments: Focus on paying off high-interest debts first to reduce the overall cost of borrowing.
Explore debt consolidation options: Combine multiple debts into a single loan with a lower interest rate to simplify repayment.
Seek professional help: Consult a licensed insolvency trustee or credit counsellor for personalized advice and debt management strategies.

6. Why is seeking help for consumer debt important?

Seeking help is crucial because:

Professional guidance: Licensed insolvency trustees can provide expert advice on debt management options like bankruptcy, consumer proposals, and debt consolidation.
Stress reduction: Addressing debt with professional help can significantly reduce financial stress and improve overall well-being.
Tailored solutions: Professionals can create personalized plans that suit your individual circumstances and financial goals.

7. What are some potential benefits of seeking help and recovering from debt?

Recovery brings many positives:

Financial stability: Successfully managing debt leads to improved financial stability and a sense of control over your finances.
Improved mental health: Reducing financial stress can lead to significant improvements in mental health, including reduced anxiety and depression.
Increased confidence and well-being: Overcoming debt challenges often results in increased self-esteem and a more positive outlook on life.

8. Where can I find resources and support for dealing with consumer debt?

Reach out to:

Licensed insolvency trustees: They can provide personalized advice and guidance on debt management strategies.
Credit counselling agencies: They offer free or low-cost counselling services to help you manage your debt and improve your financial literacy.
Government resources: Many government websites and agencies offer resources and information on financial assistance programs and debt management options.

Consumer Debt: Conclusion

Remember: You’re not alone on this journey. Change is possible, and support is available. If financial distress is weighing you down, don’t hesitate to seek help. You deserve a brighter tomorrow.

I hope you enjoyed this consumer debt Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

Tags access to credit, auto loan, consumer debt, Consumer Proposal, cost of living, credit card debt, credit counsellor, credit products, credit score, financial health, financial pressures, high interest rates, housing market, Lines of Credit, minimum payments, payday loans, personal loans, Statistics Canada, student loans

Brandon Blog Post

CANADIAN CREDIT CARD DEBT: A COMPREHENSIVE GUIDE TO UNDERSTANDING AND TO GET OUT OF THE MENACING PROBLEM

Post author By Brandon Smith
Post date March 27, 2023

canadian credit card debt

Canadian credit card debt: Introduction

Due to the holiday buying season, December has traditionally been connected with a surge in Canadian credit card debt. Nonetheless, with the start of the COVID-19 pandemic in 2020 and the surge in case numbers, celebrations, travelling, and in-store holiday shopping pretty well stopped, resulting in an extraordinary reduction in Canadian credit card debt.

Fast forward 2 years to December 2022, and Canadian consumers have returned to their traditional pre-pandemic period of extravagance in holiday purchasing. With the pandemic’s hold loosening, Canadians have eagerly ushered in the holiday spirit, leading to a rebirth of the fad of maxing out credit cards. As a result of that, and other factors I will discuss below, Canadian credit card debt is once again growing.

The escalating issue of credit card debt in Canada is gradually becoming a matter of concern for individuals and the nation’s economy in general. In this Brandon’s Blog, I will delve deeper into the Canadian credit card debt predicament, the reasons behind its growth, and plausible solutions to tackle it.

Canadian credit card debt: What is it and why could it be a problem?

The outstanding balance of credit cards of Canadians at any specific point in time is what is described as Canadian credit card debt. It is built up when people utilize their credit card to make purchases, and afterwards, carry a credit card balance from one month to the next, rather than paying off the balance in full when due.

As this financial debt begins to grow, it can trigger a lot of stress and anxiety and make it hard to stay up to date with monthly expenses. Credit cards are well-known for having high-interest rates, which means that the longer a balance is carried, the more interest the borrower will be paying, making it even more difficult to pay down the amount owed.

Furthermore, excessive credit card debt can significantly harm a person’s credit rating, which can make it harder for them to get new loans or credit in the future. This can bring about missed payments or even default, both of which will, even more, harm their credit score.

If you don’t handle your Canadian credit card debt properly, it can lead to some serious financial problems.Canaa

The current state of Canadian credit card debt

According to recent reports by Statistics Canada and Equifax Canada, people’s credit card balances are on the rise. And it’s not just a one-time thing either – Equifax Canada’s report and the government statistical agency report both states that it has been going on for the past year. Actually, by the end of 2022, Canadian credit card debt had risen by 13.8% contrasted to the previous year, leading to an overall outstanding debt of $93.4 billion.

What’s specifically concerning is that this rise in credit card debt is striking lower-income households the hardest. With high inflation, lots of people in this group are turning to high-interest credit cards to cover important rising costs like food prices, medication, as well as rent. It’s clear that we need to do even more to sustain these Canadians and also help them resolve this problem of inflation causing extra costs for Canadians.

Credit card debt can be worrisome in Canada for a few reasons. One of them is that credit card companies tend to charge pretty high-interest rates here – around 20% or more! That’s quite a bit more than other kinds of debt you might have, like a car loan or a mortgage.

Another thing to keep in mind is that Canadians’ savings are low, due to many of the same reasons that Canadian credit card debt is rising – the main one being inflation. So if something unexpected happens, like a drop in income or an unexpected expense, some folks might not have much in the way of savings to fall back on.

All in all, it’s important to keep an eye on your credit card debt in Canada – it can pile up pretty quickly!

Canadian credit card debt: Why do Canadians have so much credit card debt?

Numerous factors contribute to the excessive credit card balances among Canadians. Among the primary reasons is the effortless accessibility of credit cards. Credit card companies aggressively market their products to Canadians, luring them with attractive incentives like sign-up bonuses, cashback rewards, and low introductory interest rates.

Canada’s high cost of living is another significant reason for the country’s high credit card debt. Canadians encounter steep housing costs, surging food and gas prices, and escalating expenses of every type and description. With income failing to keep up with expenses, many resort to credit cards to bridge the gap, leading to elevated debt.

When faced with unexpected expenses like vehicle repairs or other emergencies, many Canadians lack the necessary savings and turn to credit cards to bear the costs, further increasing their reliance on credit.

Finally, a considerable number of Canadians lack the financial literacy to fully understand the trap they are falling into by continuing their credit card usage with no hope of ever repaying the balance owed.

Canadian credit card debt: Common mistakes people make when it comes to credit card debt in Canada

Signing up for too many credit cards: This can make it challenging to stay on top of monthly payments and may even lead to overspending.

Neglecting to regularly review credit card statements: This can result in harmful errors or unchecked fraudulent charges, which can add up and cause undue stress.

Making large purchases: Using credit cards for a major expensive purchase without having a clear plan to pay off the balance, can lead to hefty interest charges and long-term debt.

Applying for too many credit cards: Often enticed by sign-up bonuses or rewards, too many credit cards can lead to an inability to monitor payment schedules and overspending.

Failure to regularly review credit card statements: This can result in undetected errors or fraudulent charges. This may ultimately result in an increased balance owed or avoidable fees.

Financing large purchases: Buying major expensive items such as automobiles or vacations using a credit card without a clear plan for repayment can lead to high-interest charges and long-term debt.

It’s essential to be mindful of these pitfalls and take steps to avoid them to stay financially healthy.

Canadian credit card debt: How to tackle credit card debt in Canada

The following are 7 practical tips and strategies that Canadian individuals grappling with credit card debt can utilize:

Establish a budget: The primary step towards addressing Canadian credit card debt is establishing a budget. This will let you understand your revenue and expenses while identifying areas where you can decrease expenses to free up finances for debt repayment. It’s essential to factor in all bills, taxes, expenditures, and debt payments while drafting your budget.
Prioritize debt repayment: After developing a budget, prioritize debt repayment. Begin by repaying high-interest debt, such as credit card debt, and make minimum payments on other debts.
Consolidate debts: Consider consolidating credit card debt into a single loan that charges a lower interest rate. This simplifies debt management and lowers the interest paid over time.
Seek expert assistance: If faced with challenges managing your debt, consider seeking expert assistance. This could involve partnering with a community non-profit credit counselling agency or a licensed insolvency trustee.
Reducing expenses: Scrutinize your expenditure and identify areas where you can cut back, such as dining out, grocery shopping, and utility bills. Every penny saved can contribute towards debt repayment.
Increase your income: This could include freelancing, part-time work, or selling unused items. These avenues could provide the additional funds necessary to accelerate your debt repayment.
Avoiding unnecessary expenses: Using cash or debit cards as the form of payment instead of credit cards makes you think twice about every purchase before you make it.

Learning and using sound financial habits is fundamental for avoiding future credit card debt. Here are several compelling reasons why:

It creates superior financial management skills: The adoption of good financial habits, such as meticulous budgeting, diligent tracking of expenses, and prudent saving for unexpected contingencies, equips one with enhanced financial management skills. When one is always aware of their financial standing, they are less prone to impulsive expenditures, and the possibility of succumbing to credit card debt is thereby minimized.

It engenders a robust credit history: Good financial habits, such as paying your bills by their due date in full are what establish a good credit score. This augments the likelihood of future credit approvals and can result in more favourable interest rates and terms.

It eliminates tension and apprehension: Debt can be a source of profound stress, causing anxiety and other psychological distress. The development of good financial habits, together with the avoidance of credit card debt, can eliminate such concerns,

Canadian credit card debt: Conclusion

To conclude, by implementing these measures, you can take charge of your credit card debt and gradually work towards becoming debt-free.

I hope you enjoyed this Canadian credit card debt 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. 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.

Brandon Blog Post

IS CANADA IN RECESSION? MOST CANADIANS SAY YES TO AN INTENSE RECESSION

Post author By Brandon Smith
Post date June 27, 2022

Is Canada in recession?

Statistics Canada recently released data showing that inflation rose to 7.7% year-on-year in May, up from 6.8% in April. This was the highest reading since January 1983 and well above the 7.3% expected by economists. The inflation index rose 1.4% from the previous month, with gasoline prices, hotel prices and car prices being the main reasons for the rise in May.

Many economists believe core measures are a better indicator of underlying price pressures, as it excludes food and energy costs. The recent average of this measurement, according to Statistics Canada, increased to 4.73% which is the highest level in the last 32 years! The worst news, their inflation expectations are not stopping.

In this Brandon’s Blog, I discuss is Canada in recession and look at what effect it might have on Canadians.

Is Canada in recession? What is a recession?

In the most basic terms, a recession is not only when economic growth is curtailed but is a period of economic decline marked by a contraction in economic activity. Most governments define a recession as two straight quarters in which the economy contracts by at least 1.5 percent. Economists define it as negative gross domestic product (GDP) growth. This definition doesn’t take into account consumer sentiment, but that’s an important metric to pay attention to since it affects consumer spending.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. A new poll finds that nearly 8 in 10 Canadians believe the Canadian economy is in or near a recession. More than half of those Canadians are starting to cut back on spending to cope with the recession.

According to a recent survey of 1,517 Canadians by Yahoo and pollster Maru Public Opinion, a whopping 78 percent of respondents believe Canada is now in a recession or approaching a recession. Of those, 23% believe Canada will enter a recession within the next three months, while as many as 55% believe the Canadian economy is now in a recession.

is canada in recession

Is Canada in recession right now? What the economists say

Canadian economists were surveyed by Finder on their inflation and economic recession expectations. Most said Canada has recession risk and is heading for a recession. They say we can expect it to happen anytime between 2023 and the first half of 2024. Most thought it would happen in the first six months of 2023, another quarter thought it would take a year to manifest. Economists have pointed to the pandemic, inflation and interest rate hikes as the reasons for the recession in Canada (isn’t the hot money only flowing into the housing market the reason for the recession?).

Finder explains how economists try to time recessions. Canada is headed for a normal summer as pandemic restrictions are lifted, but a new variant of the COVID-19 pandemic could emerge in the fall that could tip us into a Canadian recession by this time next year. What they cannot tell us is whether it will be a mild recession or a deep recession.

Why Is Canada likely to experience a recession?

In a single word – inflation. Inflation is rising and our federal government is doing nothing to quell the inflation expectations. This is causing the Bank of Canada to try to tame inflation by raising interest rates. This increases the risk of a recession. In fact, many economists told Finder they expect “aggressive” rate hikes in the coming year. Most of those polled believe there will be at least four more rate hikes this year.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. The Bank of Canada is one of the central banks trying to restore soaring inflation to its target range of 1% to 3%. On June 1, the Bank of Canada announced a rate hike of 0.5%.

The timing of the recession is not easy to grasp, and much depends on what happens with Russia’s invading Ukraine. Murshed Chowdhury, an associate professor at the University of New Brunswick, expects the recession to continue into the first half of 2024. How long the supply-side problems will last and the escalation of the Russian-Ukrainian war will play a big role in deciding how things turn out.

The rise in prices causing inflation can be attributed to a number of factors, including poor fiscal management by the federal government. Other factors include record highs in commodity prices such as oil and wheat. Unfortunately, wage growth for most Canadians has not kept pace with inflation. Wages have risen 2.7% over the past two years, compared with inflation of 3.4% over the same period.

is canada in recession

Is Canada in recession? What will happen to the economy of Canada?

Consumer prices in Canada accelerated to their highest level in 40 years, Bloomberg reported, adding pressure on the Bank of Canada to continue aggressively raising interest rates in the coming weeks.

Markets are almost entirely confident that the Bank of Canada will raise interest rates by 75 basis points next month, which will lift its policy rate to 2.25%. The rate is expected to be as high as 3.50% by the end of the year. The preferential loan interest rate offered by commercial banks is usually more than 2 percentage points higher than the policy interest rate.

Prime Minister Justin Trudeau’s government has also come under pressure from opposition parties and economists to do more to contain inflationary pressures and help households offset the cost of living, though the Trudeau government has been wary of any new measures.

Like other countries, Canadian households have been hit by record gasoline prices and soaring food prices. After a slight pullback in April, gasoline prices surged again in May, rising 12% for the month and 48% from a year earlier. Food prices rose by a smaller 0.8% in May but were up 8.8% from a year earlier.

Given that gasoline prices rose further in June, the 7.7% annual figure may not even be representative of the peak annual price increase. There were more signs that imported inflation was affecting domestic prices, with the cost of services rising 5.2 percent from a year earlier, the fastest pace of growth since 1991.

The cost of living is rising twice as fast as the average Canadian wage, creating significant headwinds for the economy. Unfortunately, the Canadian government and the Bank of Canada are treating this as if inflation is all caused by domestic factors when it is really global. Raising interest rates aggressively, an old tool, cannot solve a globally induced imported inflation spike.

The inflation we are experiencing now is a result of all the shocks to the Canadian economy: COVID-19, monetary policy-induced recession factors when the Bank of Canada kept interest rates at their lowest ever levels during the COVID-19 pandemic, the supply side problems because every major world economy effectively shut down for the better part of 2 years, the war in Ukraine causing shortages and therefore price spikes. None of it is a Made In Canada problem, yet the Bank of Canada and the federal government are treating it as if it was homegrown.

Is Canada in recession? What happens if we experience a recession?

Canadians’ purchasing behaviour is already beginning to change. A poll conducted by Nanos Research for Bloomberg News indicates:

52% of Canadians surveyed say they have adjusted their spending habits, set stricter priorities and started consciously spending less in the past month.
The majority of Canadians expressed concern about the state of the economy, with 62 percent of Canadians believing that the Canadian economy was on the wrong track.
Rising prices have led 32 percent of Canadians to believe they are in a worse financial position than they were the previous month. Only 8 percent of Canadians said their situation had improved.
Regionally, the poll showed that residents of Atlantic Canada and Western Canada are particularly concerned about the economy.
In the Atlantic region, 75% of respondents believe the Canadian economy is heading in the wrong direction; in Manitoba and Saskatchewan, 77%; in Alberta, 66% of people hold this view.
41 percent of Canadians said they were in a worse financial position today than they were last year. This is the second-highest reading since 2008.

This consumer sentiment, runaway inflation and the Bank of Canada and the federal government using old tools to fix a new problem will have negative consequences for Canadian businesses. Consumer spending which previously fueled the Canadian economy, now reduced consumer spending, this will most likely place is Canada in recession.

Lower company sales will lead to job losses and our record low unemployment rate will increase possibly to a new high when the current job market changes for the worst during a recession. Business investment will be reduced and what investment is made, will be more in systems and technology than people. There will be a resultant drop in GDP. Certain asset categories will drop dramatically in price as capital flees places like the Canadian stock market for investments seen to be safer.

is canada in recession

Is Canada in recession? How to protect yourself from a recession

Our spending and investing habits directly impact the economy. This year so far, it’s been a rough ride. However, the majority of how a recession affects us is within each of our own control. The rest of it, the minority is because of forces beyond our control.

The economy will vary from year to year. Our spending, saving and investing habits directly impact the economy. It is important for all of us to make smart financial decisions now so we can weather the storm when the economy dips. Is Canada in recession? Based on the above, not right now, but, it could be soon. Here are my tips on how to protect yourself from a recession.

It’s important to have an emergency fund

When a recession hits, you can get fired and the value of your investments can plummet. One of the best ways to protect yourself from financial distress or additional debt is to increase your emergency savings.

That way, even if there are unexpected expenses, or your income is affected, you’ll have a cushion to protect yourself and your family. I always recommend having an emergency fund that allows you to survive for a 6-month period.

Boost your employment prospects

When a recession hits, job security can be at risk. To safeguard your income, you should consider finding a side hustle in addition to your regular job. This can serve two key purposes—helping you grow your emergency fund and providing you with extra income.

You should focus on developing job skills that will help improve your chances of not being laid off. Time management, communication, and attention to detail are all important skills to focus on.

Budgeting

Look at your family household expenses. Cut back on anything that is not necessary spending. If necessary, use cash to pay for purchases and not a credit card. We tend to spend less when we have to count it out in cash rather than tapping or swiping a card.

That way your money will go much further. Remember, during a recession, cash is king!

Pay down debt

Do everything you can to pay down your debt before a recession hits. The more debt you have, the more of your money goes to interest payments. If you have variable rate loan debt, as the Bank of Canada continues to crank up interest rates, the cost of that debt increases.

If you have fixed-rate debt and it comes up for renewal time, say like your house mortgage, you will be forced to renew at a higher interest rate. So, by paying down debt, you are insulating yourself as best as possible against the negative effects of the recession on your outstanding debt.

The economy may or may not slip into a recession but based on what the economists believe, more likely than not, eventually, it will. Recessions can last for a long time, or they can end quickly. However, the more prepared you are, the lower your chances of suffering a prolonged financial shock in the aftermath.

You may also want to read 2 other Brandon’s Blogs:

IS CANADA IN A RECESSION: OUR 9 EASY STEPS TO SOLVE COVID-19 INDUCED FINANCIAL PROBLEMS

CANADA IN RECESSION: WILL THE ECONOMY FALL INTO A GREAT DEPRESSION?

Is Canada in recession? What if your debt is too much for you?

I hope you found this is Canada in 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.

Brandon Blog Post

DEBT AND UNPOPULAR INTEREST RATE HIKES, HOW IS THE ECONOMY FARING?

Post author By Brandon Smith
Post date May 30, 2022

What is the definition of debt?

Debt is the money that a person or company owes to others. That is the simplistic definition. It is really one of life’s most stressful parts. Some people grow up in debt. For them, it’s just part of their lives, and they can make it work. Others live from paycheque to paycheque and save little to nothing. For them, it is crippling and can consume their lives, making their existence a daily struggle. For others, it is a parasite, feeding on their mind and their body. It can destroy their life, pulling them down and limiting their options and choices.

Consumer debt and household debt come from a number of places. Some source of debt is from emergency situations, and some of it is from buying expensive things but useful and worth the cost. That is how people have viewed real estate over the last decade, especially during the unprecedented pandemic. However, I also see some situations where high levels are just from bad decisions.

Business loans and corporate debt come in handy for a number of reasons. Perhaps you need some extra cash to get your business up and running. Or, maybe you’re looking to expand your operations by opening a new branch or purchasing new equipment. In any case, a business loan can provide the funds you need to reach your goals. Or, like in the last 2 years, perhaps the bottom has fallen out of the economy due to the COVID-19 pandemic and in order to survive, the business has had to take on government-support loans to increase the business debt load substantially.

All of these are now coming together in a perfect storm, as the Bank of Canada attempts to battle inflation and high Canadian real estate prices by beginning a pattern of interest rate hikes.

In this Brandon’s Blog, I look at how interest rate hikes, higher Canadian household debt and more Canadian business bankruptcies are the most recent signs of the Canadian consumer debt burden, as well as the major indicator of the current state of business in Canada. debt

Policy Interest Rate – Bank of Canada

The Bank of Canada’s primary business is to conduct monetary policy for the Canadian economy. This means that the Bank uses its tools of monetary policy to try to hit its target for inflation, which it does by adjusting the Bank of Canada’s policy interest rate. The Bank of Canada’s policy interest rate is the rate at which it lends money to financial institutions.

At the beginning of March, the Bank of Canada increased its target for the overnight rate to 1%, with the Bank Rate at 1¼% and the deposit rate at 1%. This Fed interest rate hike was the biggest increase in two decades. The reason? To fight inflation.

The world’s biggest central bankers have long argued that ultra-low interest rates encourage spending and investment, helping to boost growth and employment. So at the outset of the pandemic with the world economies in tatters, all major central bankers, including the Bank of Canada, set borrowing costs at record lows. Those actions, amongst other things, contributed to the current state of inflation in the economy.

Macklem won’t rule out an inflation-driven, super-sized rate hike

The central bank predicts that inflation will remain high, averaging almost six percent in the first half of this year and remaining elevated in the second half of 2022. It is expected to ease in the second half of next year before returning to the two-per-cent target in 2024.

What are the factors causing this inflation? The global financial situation has become more difficult and unpredictable. Prices for oil, natural gas, and other commodities have risen sharply, contributing to inflation in many parts of the world. Supply disruptions resulting from Russia’s invasion of Ukraine have caused the prices of energy and other commodities to increase even further.

Looking to the future, Bank of Canada Governor Tiff Macklem stated that the Bank will be taking another 50-basis-point step which has already been baked into the financial markets. He believes that the economy needs higher rates and can handle them. It is evident that Macklem is dedicated to using Canada’s policy interest rate to bring inflation back to target. As inflation continues to surge to new highs, an even bigger interest rate hike may be on the horizon. Bank of Canada Governor Tiff Macklem indicated that further and faster rate hikes could be necessary to keep inflation in check.

The problem is that Canadian inflation is as much from a global impact as it is local. Raising interest rates may slow down home buying and mortgage growth. While it is true that mortgage debt is Canadians’ single largest obligation, increasing interest rates won’t fix the sky-high pricing at the gas pumps and the supermarkets. debt

As interest rates increase, so is household debt!

The latest figures from Statistics Canada, the agency responsible for collecting and disseminating statistics related to the economy of Canada, indicated that the total amount of household debt in the country increased by 0.5% in March 2022, up $14.4 billion to $2.69 trillion.

The increase of $13.2 billion came largely from debt related to the real estate market, such as mortgage borrowing and home equity lines of credit (HELOCs). This amount totalled $2.16 trillion outstanding. However, Statistics Canada also reported that credit card debt has increased for the second consecutive month, growing at a faster rate than mortgage debt!

Now as the Bank of Canada embarks on a hiking cycle that could go faster and further than before, and sky-high inflation squeezes household budgets, economists and capital markets are once again raising the red flag.

In a recent poll, 31% of Canadians polled say they already don’t make enough to cover their bills and required payments. Economists look at the rise in credit card debt and attribute it to a rise in personal spending. This is true. However, with prices rising much faster than wages, the increase could be a troubling sign that Canadians are spending on basics by using credit to replace the money they do not have and will not have to repay the new rising liabilities.

The rising cost of debt payments is already putting a strain on Canadians

If you’re borrowing money, interest is what you pay to your lender for using their money. It is your debt cost. If interest rates go up, the amount you have to pay each month for a mortgage, line of credit, or other loans with variable interest rates will increase. The minimum payment required each month on variable rate loan products will increase as interest rate hikes continue. At some point, you’ll also need to renew a fixed interest rate mortgage or loan. When interest rates are rising, the renewal rate on the fixed debt cost will be higher.

Raising borrowing costs to quell rising consumer prices may pose some risks, especially since Canada has a high level of household debt. In terms of household debt to income, Canada ranks 4th highest in the world. debt

What are the most effective ways to reduce your debt?

Paying down debt as much as possible will help counter the effects of a rise in interest rates and provide you with much-needed debt relief. Here are some of the best ways to reduce your debt burden thereby improving your credit score and credit rating:

Cut up your credit cards and only use cash for an extended period of time until things are back in control.
Make a budget and stick to it.
You should have an emergency fund to pay for unexpected expenses arising from external events out of your control.
Create a payoff plan. Look at your various categories of debt and make a plan that is most realistic for each type of debt.
Save money on interest by paying down the outstanding amount with the highest interest rate first.
Debt consolidation. Consolidate your liabilities with the highest interest rates into a single loan with a lower interest rate. By keeping your payments the same, and paying more than the monthly minimum payment, you’ll be able to pay it off faster and save money in the long run.
Avoid getting the biggest mortgage or line of credit that you’re offered.
Get a part-time job or begin a side hustle to boost your income.
Think first about how borrowing more money could impede your ability to save for future objectives.
Speak to a financial advisor or one from a wide variety of other financial professionals to find out how to teach you how to create a plan to be debt-free.

What will happen now with external debt and business bankruptcies?

As businesses continue to experience insolvencies, it’s important to note that the Canadian business bankruptcy rate is on the rise, according to a recent report by Statistics Canada and the Office of the Superintendent of Bankruptcy Canada. This increase underscores the importance of taking measures to protect your business from financial hardship.

Business bankruptcies in Canada increased by almost 34 percent year-over-year in the first quarter of 2022, which some experts warn could be the start of a growing wave of failures. This is closer to pre-pandemic levels. The number of business bankruptcies and proposals increased in the first quarter of 2022, with 807 cases compared to 733 in the previous quarter and 603 in the first quarter of 2021.

Business bankruptcies in Canada are increasing as government support comes to an end and businesses face a difficult post-pandemic recovery with high costs, supply chain problems and a shortage of workers. The financial support provided by the government through the COVID-19 pandemic assisted in delaying the surge in bankruptcies. Funding sources are becoming more expensive also.

Small business owners are feeling increased pressure from inflation in comparison to the average Canadian. With each budget line costing more, filing for bankruptcy is often the only option left. The data doesn’t capture the number of insolvent businesses that are forced to close without any formal filing, but the trend is now becoming evident.

Do you think that debt levels and bankruptcy filings will surpass pre-pandemic levels?

The state of the economy and how inflation and supply chain issues are managed will determine if the number of bankruptcy filings will rise in the coming months or not. As you can see, inflation, supply chain issues, interest rate hikes, household debt problems, business owners searching for more solutions and business bankruptcy filings are all now coming together in a perfect storm.

I hope this Brandon’s Blog on the current state of Canadian interest rates, household debt and business bankruptcies was helpful to you in understanding more about the corporate bankruptcy system in Canada.

If you or your company has too heavy a debt load, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life. debt

Brandon Blog Post

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

Post author By Brandon Smith
Post date March 14, 2022

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: 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.

Brandon Blog Post

WILL AN INTEREST RATE HIKE IN CANADA BE NECESSARY AND WOULD IT BE EXCRUCIATING FOR CANADIANS?

Post author By Brandon Smith
Post date January 17, 2022

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fullynt operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Interest rate hike in Canada: Introduction

The Bank of Canada Governor, Tiff Macklem, announced on December 15, 2021, that the slack in the economy caused by the Coronavirus pandemic has substantially decreased. It is a clear indication that the central bank will begin an interest rate hike in Canada process in 2022. In addition, he said the central bank was concerned about the rate of inflation, which was at an 18-year high of 4.7% and well above its control range of 1-3%.

Here is a Brandon Blog about why at least one interest rate hike in Canada is likely in 2022 and what that means.

Interest rate hike in Canada: Canadian borrowers prepare as U.S. central bank warns of 3 rate increases in 2022

The U.S. central bank will now direct its attention to battling inflation. As it slows down its bond-buying, the Federal Reserve may raise rates as soon as April 2022. U.S. central bank forced to end stimulus due to job creation, expanding economy, and soaring inflation.

Fed says it will end its pandemic-era bond purchases in March, signalling it has met its inflation target. Federal Reserve rate increases are inevitable for Canadian borrowers. In the event that the Federal Reserve was to wind down stimulus faster and hike rates more rapidly, rising rates would have a greater impact on the Canadian economy. Governor Macklem will be free to act without fear of damaging Canadian exports if the Fed decides to increase interest rates.

Inflation is too hot right now. That’s the message from both the US and Canada central bankers.

interest rate hike in canada

Interest rate hike in Canada: Higher interest rates are coming. Omicron is unlikely to change that

At the beginning of the pandemic, the Bank of Canada reduced its benchmark interest rate to the current low level of 0.25 percent. Generally, a central bank will elevate its benchmark interest rate to cool down an overheated economy and control inflation. To stimulate a cold economy, it will decrease the rate of interest, which will encourage individuals as well as companies to borrow and spend.

To bring inflation under control, various economists predict that the Bank of Canada will need to raise interest rates in 2022. The argument is that monetary policy is the best way to deal with permanent, sustained inflation. According to them, a series of rate increases is needed to deal with it. As the federal government has suggested, recent inflation acceleration won’t be transitory.

In spite of the current outbreak of the Omicron variant, economic data from as recently as December shows the economy continues to outperform.

Interest rate hike in Canada: No need to hike benchmark interest rate just yet, Bank of Canada says

It is now difficult to find a senior economist that believes interest rates won’t rise to bring ongoing inflation under control by the end of 2022. Despite repeated attempts from the Canadian Government, the public isn’t convinced that Canadian inflation is minimal.

Canada’s central bank is the Bank of Canada, a crown corporation. Statistics Canada’s Consumer Price Index (CPI) is used to make Bank of Canada decisions. With the inflation-control target introduced in 1991, the ideal range for annual inflation is 1% – 3%, with the midpoint of 2% as the common target rate.

The Bank of Canada now says that the labour market slack has been absorbed significantly. It says the interest rate will remain at record lows until the economic slack is sustainably abated, which is currently forecast for the middle quarters of 2022.

Until Q2 or Q3 of 2022, the Bank of Canada expects its policy interest rate to remain at 0.25%. Until the second half of 2022, CPI inflation is also forecasted to remain above 2%. Currently, the Bank of Canada is keeping its policy interest rate unchanged. Eventually, economic levers currently being used, such as quantitative easing, will no longer be enough.

interest rate hike in canada

Interest rate hike in Canada: Rate hikes don’t fix bottlenecks and can hurt Canadians

Current inflationary pressures are due to supply chain disruptions, pandemic-related supply bottlenecks and energy prices. Hopefully, the economy will be more healed in the second half of 2022 before central bankers hike rates.

Considering the amount of outstanding debt, Governor Macklem should be careful not to raise borrowing costs too quickly or too much. If the Bank of Canada waits too long to begin an interest-rate increase, the rate hikes will have to be more dramatic, and Canadians aren’t ready for dramatic increases.

As the market rates are already preparing for a higher rate outcome, the average Canadian doesn’t need to prepare for the level of interest rates itself. Canadians will be affected by the pace of rate increases, in my opinion.

The current low-interest rates are designed to help borrowers weather the pandemic caused economic storm. In addition, since the outbreak of the pandemic, real estate prices have risen significantly, possibly creating a housing bubble in Canada. The Bank of Canada and the government are under pressure to lower stimulus because of asset bubbles in real estate and other assets.

Interest rate hike in Canada: How Will Higher Interest Rates Affect Me?

As a result of supply constraints resulting from Coronavirus-related events, low-interest rates will eventually end due to inflation. Meanwhile, there are concerns about another strain of this pandemic causing more economic damage. With no indication that the pandemic will ease any time soon, the Bank of Canada is inclined to gradually raise rates to avoid shockwaves reverberating throughout the entire economy.

Some Canadians may be affected by higher interest rates. In the long run, the Bank of Canada will have to make every effort to maintain a stable economy.

As Canadians struggle to get back to normal, they are concerned about the impact of a rate hike. A higher interest rate could lead to less consumer spending and job losses, according to some economists. Variable-rate mortgage debt holders will have higher interest costs. The same goes for those with fixed-rate debt, such as mortgage debt, whose term is set to expire. They are concerned about having to renew their mortgage debt at a higher interest rate. Business borrowings with a variable interest rate pegged to the financial institution’s prime rate will also cost more.

The one thing we know for sure is that many Canadians are concerned about the future and what changes in interest rates may mean for them. Nonetheless, the Bank of Canada will not raise interest rates overnight. It typically takes the central bank several months to set interest rates.

Whenever the Bank of Canada decides to raise rates, it will carefully consider how it will affect different groups of Canadians, such as those with mortgages and those without homes. In the case of mortgage holders, the Bank of Canada wants to ensure that they can afford their mortgages when interest rates rise.

In order to maintain the economic recovery, the Bank of Canada must manage the risks associated with rising interest rates.

interest rate hike in canada

Interest rate hike in Canada: Summary

I hope you found this interest rate hike in Canada Brandon Blog informative. Although nothing is guaranteed, managing your debt in a way that will allow you to be able to afford it, even if there is an interest rate hike in Canada, will lead to your financial success. It will also give you the best shot at having a financially stress-free life.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a Government of Canada-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

interest rate hike in canada

Brandon Blog Post

THE RISING COST OF LIVING IN TORONTO AND ELSEWHERE: WILL YOU BE PUSHED INTO HUGE DEBT?

Post author By Brandon Smith
Post date October 21, 2021

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.

Cost of living in Toronto and elsewhere: Canada’s rising annual inflation rate is a cost-of-living crisis

Two articles about living costs for Canadians were published this week. According to a recent Angus Reid poll, many Canadians’ quality of life is further diminishing as more debt is accumulated and the pandemic continues. Then Statistics Canada announced that the annual inflation rate reached its highest level since February 2003 in September.

When you hear the term “cost of living“, it’s often accompanied by the phrase “rise” or “have risen”. Recent data shows that Canada as a whole has experienced an increase in the cost of living. In this Brandon Blog, I describe how the rising cost of living in Toronto and elsewhere has the potential to create more debt and therefore more stress on Canadians.

cost of living in toronto

Cost of living in Toronto and elsewhere: What is the Consumer Price Index?

Consumer Price Index (CPI) is a national measure of prices based on living costs across major cities in Canada. As the most quoted measure of living costs today, the CPI shows how costs have changed from year to year and illustrate that not everything is as cheap as it once was.

It is inflation that tells the whole story. A rising cost of goods and services reduces the purchasing power of the dollar. Cost increases are measured by this indicator. A CPI calculation represents the average cost of an accepted basket of the standard of living items, such as:

food prices;
cost of housing;
transportation costs; and
medical costs

How does inflation affect our daily lives? Inflation increases food, gasoline, and utility costs, reducing savings and discretionary spending. Price increases create economic inequity. They are tough on the middle class, and even harder on the lower class.

What is behind the rise in prices? The federal government, via Statistics Canada, reports that the consumer price index in September was up 4.4 percent compared to last year. In August, the reading grew by 4.1% year-over-year. Last month, consumers paid 32.8 percent more for gasoline than in September 2020. This increase in gas prices is what drove most of the increase.

cost of living in toronto

***Cost of living in Toronto* and elsewhere: The negative side of the *cost of living increases***

As the cost of living and the inflation rate rises, Canadians are often caught short by unexpected financial burdens that can quickly devour their earnings. At the same time, the cost of day-to-day living, like food and housing, is increasing, which makes it hard for Canadians to save money for the future. Research shows that for low-income families, housing, food, transit and child-care costs generally are all increasing at a faster rate than incomes. This can easily push poorer households below the poverty line.

All of us have heard about the cost of living increases, and so far it has been a controversial topic. We haven’t reached a consensus regarding this issue. Some say we shouldn’t worry about it, while others say we need to act.

The surge in inflation highlighted the failure of Prime Minister Justin Trudeau’s economic policies, said Erin O’Toole during the recent federal election. How did PM Trudeau respond? In his view, monetary policy is not one of the top priorities for his government after the election. He continued:

“When I think about the biggest, most important economic policy this government if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”

Canadians were encouraged by Erin O’Toole to vote out the government. Well, that did not happen!

cost of living in toronto

Cost of living in Toronto and elsewhere: How the rising Consumer Price Index affects you

Researchers at Angus Reid Group conducted an online poll of 2,015 Canadians in September to determine the affordability of living in Canada. The survey found 26% of respondents had incurred at least one new debt, with 72% reporting that this debt has negatively affected their lives. The most common type of new debt was credit card debt.

In a previous Brandon Blog, I reported that many households were able to pay off higher-rate credit card debt during the lockdown while receiving payments from federal government COVID-19 pandemic support programs. After a return to normal, however, that will look, those same households run the risk of increasing their credit card balances again. The reality is that most people used their credit cards as a supplement to their income to pay for living expenses and/or lifestyles due to insufficient income.

According to the new survey, Canadians have now started taking on new credit card debt. As a result, their quality of life is further diminished as more debt accumulates and the pandemic continues. Canadians’ savings have also been impacted by increased spending on essentials, job loss and lower-income, according to the survey.

High real estate prices are forcing many Canadians to delay home ownership, according to the survey. Meanwhile, we have seen that the one thing the pandemic couldn’t stop was the booming real estate market in large Canadian cities. Even areas not typically associated with significant price increases are showing growth in real estate prices now that more big city dwellers are opting for a more flexible lifestyle by working remotely. Based on these results, it is clear that there is a larger gap between those who can afford to buy a home and those who cannot.

60 percent of Canadians said they would prioritize saving for an emergency fund or nest egg. In other words, Canadians’ priorities have shifted in 2022, with most thinking about saving for emergencies, retirement, and a major purchase like a house, car, or cottage.

cost of living in toronto

Cost of living in Toronto and elsewhere: Tips to combat the financial hit of rising living costs

If we spend $10 at a coffee shop every day, what should we do differently ahead of time so that we’re not tempted to spend that $10? All of these things become habits, and habits are hard to break.

Regular readers know that in prior blogs about household debt and spending, I have stressed the importance of household budgets. Every source of family income and every expense must be considered. You need to look critically at all family expenses and separate the wants from the needs. Attempt to cut every expense you have (yes, every single one!) with the aim of saving 10% – 50% right now. Also, consider creatively if you can earn extra income in any other way.

There is no doubt that rising inflation, ongoing economic challenges worldwide, and the risk of interest rates going up are causing many Canadians to feel stressed and stretched to the limit. But it is still possible to spend less and build savings, even as your living costs rise.

As you do so, here are a few tips to help you stay on top of your finances and avoid debt in spite of rising costs:

Even though restaurants reopen, that doesn’t mean you have to buy most of your meals there. You can buy food at grocery stores instead.
Take advantage of what’s on sale or can be purchased at a discount when planning your meals.
If you can, buy bigger packages when they’re on sale for a lower price than smaller packages.
Analyze all your household and utility bills to find savings.
Savings are possible in many areas, including the bank account, cell phone, and internet plans.
Those $10 a day you spend at coffee shops add up to $170 a month if you do it 4 days a week.

When you’re looking forward to preserving your overall well-being through a sound money management plan, it’s easy to remember why you’re making frugal choices.

cost of living in toronto

Cost of living in Toronto and elsewhere summary

I hope you found this cost of living in Toronto and elsewhere Brandon Blog post informative. 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.

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.

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 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.