Canadian consumer debt drops for first time in a decade after people stop using their credit cards

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With stores and restaurants closed in March, consumers reduced credit card use, and the trend continued in April

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According to Equifax Canada, a sharp drop in credit card use at the end of March led to the first drop in consumer debt balances in more than a decade.

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Average non-mortgage debt balances fell 0.5% to $23,386 ($17,200) in the first quarter from a year earlier, the nation’s largest credit reporting firm said on Tuesday. With stores and restaurants closed in March due to the coronavirus, consumers reduced credit card use, leading to lower balances.

The trend accelerated in April, “with little sign that consumers are looking to take on debt for help in the early days of the pandemic,” said Bill Johnston, vice president of data and analytics. analysis at Equifax, in a press release.

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Massive injections of cash from the federal government and the Bank of Canada, as well as deferrals of mortgages and other loans appear to be helping consumers avoid trouble, for now. Consumer insolvencies plunged to their lowest since 2007 in April, the country’s bankruptcy office said this month. And household debt-service ratios, a key measure of financial stress, fell in the first quarter, Statistics Canada said last week.

Equifax said the biggest decrease in debt burden was among the youngest cohort. Average non-mortgage debt balances for 18- to 25-year-olds fell 1% to $8,588, the data showed.

Delinquency rates hit 1.22% in the first quarter, which Johnston said was not an accurate reflection of COVID-19. “The combination of payment deferrals and government supports has minimized the impact on delinquencies, at least in the initial phases,” he said by email. Late payments “will in all likelihood increase sharply”.

Bloomberg.com

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