27 Jun, 2023
Debt Looming
Uncategorised Comments Off on The Looming Debt Crisis: Canadian Households Under Pressure

Debt Looming

Recent reports and studies have sounded the alarm about the financial health of Canadian households. Concerns are growing about their ability to manage debt and the potential consequences for credit scores and mortgage rates. 

The economic challenges of our time have hit millennials hard, resulting in a surge in non-mortgage debt. Budgeting and managing the higher cost of day-to-day necessities, along with increasing high-interest loans, have become crucial for this demographic. 

Brace Yourself for a 40% Payment Increase

The Bank of Canada has expressed grave concerns about the increasing burden on households when it comes to servicing their debt, particularly for those with mortgages. Brace yourself for pay increases of up to a staggering 40% upon renewal.

Rising Interest Rates and Debt-Service Ratios: How They Affect You

The rise in interest rates has brought about another major concern: the mounting debt service costs for many mortgage holders. As a result, debt-service ratios (DSRs) are on the rise, reducing flexibility for borrowers who may face unexpected financial challenges. 

It’s not just mortgage holders feeling the squeeze; the cost-of-living crisis and elevated interest rates have strained Canadians’ relationships with debt across the board. Lower-income consumers, in particular, are struggling to keep up with payments on non-mortgage consumer credit products. 

Late Payments Can Make or Break You

Even a single slip-up can wreak havoc on your credit report and score. Understanding the reporting and payment due dates is crucial to avoiding negative impacts on your credit profile. In general, late payments won’t appear on your credit reports for at least 30 days after the day you missed the payment. However, you can still be charged late penalties. 

Negative information, such as late payments or bankruptcies, can haunt your credit reports for up to six years, while positive information can work in your favour. 

If you miss a payment by just a few days or a couple of weeks and manage to make the full payment before 30 days have passed, it’s possible that lenders and creditors won’t report it as a late payment. However, if you can only make a partial payment or fail to make the full payment, it will generally be reported as late. You have the opportunity to catch up on late payments before they appear on your credit reports. In some cases, certain lenders and creditors may not report late payments until they are 60 days past due.

Renewed Mortgages and the Need for Precaution

As more mortgages come up for renewal, there’s a growing concern about payment shocks for homeowners. Fixed-rate mortgages expected to be renewed in the next 12 months may lead to increased monthly payments or require extending mortgage terms to maintain existing payment levels. 

Stay Informed and Take Control: Managing Debt, Due Dates, and Credit Reports

To navigate the challenges posed by the Canadian debt landscape, it’s crucial for borrowers to stay informed about their debt obligations, payment due dates, and credit report status. Regularly checking credit reports from Equifax and TransUnion can help ensure accuracy, and completeness of information, and identify any negative entries that should be removed after the appropriate period.     

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