It seems, Canadians have collectively used their time at home during the pandemic to reflect on their finances and pay off an impressive amount of debt.
According to Statistics Canada, overall non-mortgage debt fell by 20.6 billion from the start of the pandemic to January 2021. Non-mortgage debt includes debt such as payday loans, auto loans and credit cards.
While this amount is shocking, on its own, what might be more surprising, is the fact that most of that debt was paid off by Canadians with lower credit scores.
The total balance owing for those with credit scores below 640 dropped from nearly $15 billion in the 4th quarter of 2019 to below 10 billion in the 1st quarter of 2021. Comparatively, those with credit scores over 800 only reduced their non-mortgage debt from about 16 billion to 14 billion.
For those with lower scores, this meant a more than 35% drop in balances, while those with credit scores between 641-800 saw drops of between 15-20%.
If you think that’s surprising, here’s the real kicker – due to lengthy lockdowns, which gave Canadians little opportunity to spend, household consumption spending dropped 14.7% in the 2nd quarter of 2020. When compared to a year earlier, this has been the biggest year-over-year spending decline since Statistics Canada started tracking in 1961!
Even though household spending has already bounced back since lockdown restrictions have eased across the country, March 2021 credit card balances were still $11.5 billion below their pre-pandemic levels.
Since people are starting to go out and start spending again, paying off their debt may just be a way to increase their post-pandemic purchasing power.
As a financing company that has helped millions of consumers across the country secure financing, regardless of their credit score, we’re happy to see Canadians lowering their debt and becoming more financially responsible consumers.