High hopes for rate cut mean lower unease over debt: report

Albertans aren't feeling as bad about their debt as they did a year ago, thanks to anticipation of a possible interest rate dip, according to an MNP report.

The share of people concerned about their debt has fallen by four percentage points to 46 per cent, while a quarter says they are better equipped to absorb an interest-rate increase by one percentage point.

The poll, conducted by Ipsos, also found 27 per cent of respondents say their debt situation is better than a year ago, while 17 per cent say they are worse off than last year.

Last year, almost half of Albertans told MNP they were falling short of covering their financial obligations by $200 or less.

That share fell to 34 per cent, a three percentage point drop from the previous quarter.

“With interest rates potentially coming down, Albertans' current debt perceptions are rebounding,” says Donna Carson, a licensed insolvency trustee with Alberta-based MNP Ltd.

“While they are exhibiting more confidence in their debt situation and ability to manage interest rate hikes, households in the province continue to feel the squeeze due to looming mortgage renewals, persisting financial impacts from the pandemic and cost-of-living pressures.”

Close to two-thirds are still concerned about paying their debts, nearly half regret taking on their amount of debt and one in five are technically insolvent, meaning they are unable to cover all their bills.

MNP adds the pressures have led some to miss out on social events.

“Some may be sinking further into hardship because they simply can't afford to participate,” Carson added.

The financial squeeze has been made more painful by increases in people's mortgage rates.

Mortgages make up about 74 per cent of the roughly $2.9 trillion of total household debt in Canada, according to a January study by TD Economics.

In addition, the share of income used to pay off debt has risen to 15.4 per cent from 13.6 per cent in 2020, forcing people to take on further debt.

The study came on the heels of another report by Transunion that showed the average credit card balance in Canada is more than $4,000.

Since Alberta follows a boom-bust cycle, the obligations of some involve maintaining lifestyles that aren't compatible with the current economic environment, such as paying for RV trailers, a second property or multiple vehicles, Lindsay Burchill, an insolvency trustee with MNP, previously told Postmedia.

The Bank of Canada has signalled it may cut interest rates this year as inflation has cooled from its highs a few years ago, bringing much-needed relief to people's budgets.