Is It Just Me or Is the Pressure to Get Debt in Canada High?

The C.D. Howe report I read this month cleared up some things I wondered about Canada’s relationship with debt. Yes, Canadian residents have high debt loads. Higher, in fact, than any other G7 country.  

The data revealed something relevant to our audience of newcomers too: The groups of people really feeling the strain are: 

• Younger Canadian residents 

• Lower-income households 

• Homeowners with large mortgages in Toronto and Vancouver. 

Many newcomers fit into these categories. 

So, we decided to write this news piece to fill newcomers in on strategies for managing household debt in Canada. We’re hoping it can help you co-exist with (or maybe even buck) the high household debt trends in Canada. 

Key Takeaways 

• Keeping costs on housing and cars manageable is a key strategy. 

• Building a Canadian credit history is useful, but you don’t need to carry credit card debt to do it. 

• Be careful with offers that make purchases seem more affordable by splitting them into smaller payments. 

How we reported this story:  

I read the CD Howe report plus other media reporting from MoneySense, as well as a recent study completed by StatsCan on immigrant indebtedness. I also checked out Reddit to learn more about what people are experiencing on the ground. Two team members reviewed this article too, to reduce the risk of my personal money experiences dominating the narrative.  

For Large Purchases: Think About What You Can Afford, Not What You Qualify For 

The C.D. Howe report highlighted that buying a home in Canada’s more expensive markets, including Toronto and Vancouver, was a high contributor to financial stress in Canada. The report even refers to newcomers in this section, and we know that newcomers often choose to settle in Vancouver and Toronto, so it’s likely more than a few of you reading this have either bought in or are thinking about buying in these expensive markets.  

Here’s a hard truth from the report: Mortgage arrears in Toronto have more than quadrupled in recent years. This means more and more borrowers are finding it challenging, or impossible, to make their mortgage payments in Toronto.  

A Quick Tip: Managing Offers for Credit in Canada 

I regularly receive offers for lines of credit, credit card limit increases, and even home equity lines of credit. Before I accept them, here’s what I do:  

I like to reflect on my own financial circumstances. First, I ask myself whether I’m likely to max out the credit and struggle to pay it off. If I’m confident I can manage it, I move on to a few other questions: Will having access to more credit encourage me to spend more without improving my life? Will it help me feel more financially secure in Canada? And do I have the knowledge and habits to manage it responsibly? I’ve found that asking myself these questions helps me make more intentional decisions about when credit is genuinely useful and when it’s better to maintain my status quo. 

Knowing What You Spend is an Essential Start Point 

Interestingly, reporting from MoneySense noted that homeowners in Canada don’t know what their housing costs are.  

This makes sense. There are factors that make it tricky – such as annual, variable costs like insurance and property taxes. These can make it hard to even estimate costs, and at that point, why bother, right?  

In my experience, estimating and being slightly off on overall expenses is so much more empowering than just not knowing.  

To get started, I downloaded my credit and debit card transactions for one year (yes, all of them) and categorized them broadly – think gas and car, housing essentials, housing upgrades, vacations and fun, eating out and entertainment, and so on.  

If you’re planning to start here too, I found the most important thing was to make sure wants and needs were in different categories. That way I could get a better look at my fixed, mandatory costs compared to me spending on things I wanted but didn’t need. 

It takes a bit of time, I think it was about two hours for me. But it was time that I felt was so well spent. It helped me get a fuller picture of my spending, and I was in a much better place to decide what spending made sense for me going forward.  

Build Healthy Credit Card Habits 

There are so many credit score myths and misunderstandings in Canada that can have a huge impact on your personal finances. One thing that surprised me when I started learning more about credit in Canada is that you don’t need to carry a credit card balance and pay interest to build credit in Canada.  

These are some healthy credit card habits I’ve built in Canada to help manage my household debt and to build my credit:  

I use my credit card for boring purchases 

I felt that it was important to use my credit card to build my credit in Canada, but I didn’t want to overextend myself. So, I started using my credit card for all of my ‘boring’ expenses. I bought groceries with it, paid insurance premiums and my monthly phone bill, got gas for the car, got haircuts, and a few subscriptions (I know, these aren’t necessarily essentials, but practicality won over perfection here for me). 

Each month, I knew about what the monthly balance would be and I made sure I always had enough money to pay it off. If there was ever an unusually high bill, I immediately looked to see what went wrong and what lessons I could learn from it.  

I automated my credit card payments 

Many banks in Canada will set up automated credit card payments. From memory, I had to call and request them to set it up but it didn’t take long. I was asked whether I wanted to pay down the full balance each month or the minimum payment. I chose to pay the full balance each month.  Luckily, online banking has come a long way and you can now do this online for at least some of the major banks.  

I found this to be really helpful. It completely removes the risk of me forgetting to pay my balance one month, or accidentally paying late. But, I know this could be a little risky if I wasn’t sure if I’d have the full balance in my account each month, so the right choice here can vary.  

I have separate cards for needs and wants 

This might be a little pedantic, or not practical for everyone, but it works well for me and my partner: We have separate credit cards for our needs, vs our wants.  

Admittedly, two credit cards doesn’t automatically mean money management is easier or better. Some people might spend more or incur fees or interest when managing multiple credit cards. But I find this setup makes it easy to see whether our monthly expenses are increasing because we’re spending more money on things we need, or maybe suffering from a little lifestyle creep. 

Speaking of lifestyle creep, I have one little tip for managing purchases on ‘wants’: wait 48 hours before buying it. Give it a try and see if it works for you! One of our team members (no naming and shaming here) said they probably have about $500k worth of stuff they never bought in abandoned shopping carts across the internet.  

If You’re Already In Debt… 

We can’t get into too much detail in this article, but we’ll briefly cover some tips for reducing household debt if you’re already in it:  

• Avoid payday loans. Research from UBC Okanagan shows that households that have payday loans are more likely to miss payments.  

• Try gamifying your debt payoff. You can make a chart with squares you can colour in as you pay off debt, or pay debt down instead of making impulse purchases, and so on. These little habits can trick your brain into thinking debt payoff is fun!  

• Challenge yourself to a no-spend weekend, or to bring down your fixed costs to help pay off debt more quickly. If you usually spend $700 on groceries, see if you can decrease that. If so, by how much.  

• Consider speaking with an advisor.  

Final Thoughts: You Don’t Have to Follow Canada’s Debt Culture 

When I first arrived in Canada, I felt like building a financial life here came with a long list of things I was supposed to do: Get a credit card. Build a credit score. Finance a car. Eventually, buy a home. 

And while credit can be incredibly useful, I think it’s important for newcomers to know that you don’t have to borrow money simply because it’s available to you. I ended up choosing not to borrow money to buy a car and I bought one outright with cash. It didn’t help my credit score, but it was the right move for me. 

The C.D. Howe Institute report showed me that Canada’s household debt problem isn’t affecting everyone equally. Some households are managing their debt comfortably, while others are under significant financial pressure. 

For me, the biggest lesson has been to focus less on how much credit I can access and more on how much financial flexibility I want to have. 

That means knowing what I spend, thinking carefully before taking on new debt, and building habits that make managing money a little easier. 

And I don’t think there’s anything wrong with taking a slower approach to building a life in Canada. You don’t need to buy everything in your first year, own a home as soon as you qualify for a mortgage, or finance a new car because everyone around you seems to have one. 

After all, I want to have enough financial freedom to enjoy the life I’m building in Canada.