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Debt Reduction is a Top Priority as Canadians Adapt to High Inflation

We all want the peace of mind that comes with watching our savings grow, whether it’s funds for retirement, saving for a dream home or cottage, or funding an education. Canada’s rising inflation has made it harder to accumulate savings. A recent survey by LARi Insight explored how inflation is impacting Canadians’ financial plans and goals.

Focusing on Debt Reduction is a Priority for 23.5% of Canadians

Asked “How has inflation affected your long-term financial plans, such as retirement or saving for education?”, the most common answer was “focusing on debt reduction”, selected by 23.5% of over 1,200 respondents. The remaining survey options included: Switching products to reduce fees (20.7%); Increasing savings (17.1%); Changing investment strategies (15.5%); Delaying retirement (12.8%); and Considering alternative retirement plans (10.4%).


In the tug of war between savings and debt, interest charges can erode the ability to store up funds for financial goals such as retirement. While it might be a stretch to say that Canadians love debt, we’ve certainly accumulated a lot of it. A May, 2023 report from the CMHC pointed out that Canada’s levels of household debt are highest among the G7 nations. 

Chart: household debt as a share of GDP by Country

Household debt as a share of GDP by country – Source: IMF

Deputy Chief Economist Aled ab Iorwerth was quoted saying “Canada’s very high levels of household debt makes the economy vulnerable to any global economic crisis.” The report also noted that Canada’s level of household debt is equal to 107% of Canada’s GDP, a concerning threshold our country crossed in the post-pandemic era.


By far the biggest debt factor for most Canadians is the mortgage on their home – it accounts for ¾ of Canada’s household debt. Canada’s prime rate has increased from 2.45% in March 2022 to 7.2% today. Lending rates from mortgage companies are currently in the 5-8% range. The average mortgage for a new home in Canada is $364,000 according to Statista. Using the LARi Insight mortgage calculator shows the impact of interest rate increases. Monthly payments for a 20-year mortgage have increased roughly 46% in recent years, from $1,928.85 to $2,822.09. Over the lifetime of the mortgage, that’s an additional $214,377.98 in interest. That’s a big hit for any budget, and likely the most significant reason that debt reduction is the top choice in our survey.

“Things are nightmarish. My mortgage has nearly doubled but I’m paying next to nothing on principle.” – Virginia, Toronto, Ont.

Canadian Credit Card Debt Setting New Records

Turning to another of our favourite forms of credit, credit cards, the picture is no rosier.  Money owed on credit cards climbed to a new high of $113.4 billion in the third quarter of 2023, up 16 per cent from last year, according to Equifax Canada. The average credit card balance climbed to $4,119 in the quarter, compared to $3,727 last year, higher than balances before the pandemic. And there’s no sign that credit card debt is slowing; in fact, six million new credit cards were issued in the year ending Q3 2023.


“The increase in credit card debt is being driven by several factors, including the rising cost of living, higher interest rates and the economic slowdown,” Rebbecca Oakes, a vice president at Equifax Canada, said. “These factors are putting a strain on household budgets, making it difficult for many Canadians to make ends meet.”

Payday Loans Used by Over Two Million Canadians Each Year

Payday loans, likely the most costly form of short-term financing, are typically used by those struggling to balance their budget on a month-to-month basis. You might assume this is low income earners, but a survey by Canada’s Financial Consumer Protection Agency found that 20% of respondents reported household incomes exceeding $80,000, with 7% over $120,000.


At this time, it’s difficult to assess the impact of inflation on Canadians’ use of payday loans. Government regulations have been introduced in some provinces in recent years that limit the profitability of these businesses, and many have closed. The Financial Consumer Agency has created an overview of payday loans, and the dangerous cycle of debt they can create.

Canadians Expect a Rough Road Ahead for Financial Matters

LARi Insight’s Inflation Survey indicates that the majority of Canadians expect inflation to increase in the coming year, with 35.6% believing inflation will increase slightly, and 22.7% indicating inflation will rise significantly. When asked “Has inflation affected your confidence in the Canadian economy?”, 62% indicated “yes”, compared to 19.9% who chose “no”. The remaining 18% chose “unsure”. The last three years have given Canadians a turbulent economic ride, and our optimism for the future is showing signs of that strain.


Make Debt Reduction a Top Priority

If, like 23.5% of our survey respondents, you’re focusing on reducing debt as part of your financial plan and goals, there is help. Our debt reduction tips provides guidance and resources. Use our calculators to plan a budget, build an emergency fund, calculate your net worth, or explore the costs of a loan.

The Financial Impacts of Canadian Inflation

Explore our complete coverage, with original market research and analysis from LARi Insight.

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