519-646-2222I AM IN DEBT; HOW DO I GET OUT?
Millions of Canadians are asking themselves “I am in debt; how do I get out?”. The answer is as complex as the problem itself.
With a background in experimental psychology, I have strong interest in statistics and data generally. So, in this blog I will share some of the data I have dug up and allow you to us it to draw your own conclusions.
THE PROBLEM:
The problem is that Canadians carry more debt, per capita, than anyone else in the world. Consumer debt was virtually non-existent in Canada until the late 1970s and never became a significant problem until the 1990s and it has grown exponentially since.
MORTGAGE DEBT:
More Canadians than ever are registered on title of residential real property, with the majority carrying some form of mortgage debt. In the past consumers would have only one mortgage which was sacrosanct, they would aggressively pay down their mortgage (to reduce interest payments) then host a mortgage burning party after they made the last payment and finally owned their home.
Today, many homeowners carry layers of mortgage debt, including first, second and third mortgages, home equity lines of credit, credit card debt and a miscellaneous bevy of other debt registered against the title of their homes.
In a surprising number of cases people are oblivious to the extent of leverage applied to real property. In addition to layers of mortgage debt selling a house involves paying hefty real estate commissions as well as legal fees and penalties for getting released from mortgage contracts.
In summary, most homeowners have a lot less unleveraged equity, and far more debt, than they think.
CREDIT CARD DEBT:
Consumer credit card debt was virtually non-existent until the late 1970s, with few people qualifying for credit cards. But following changing rules and laws around consumer usury protections credit cards started to really proliferate the market in the early 1980s.
By the 1990s consumers were having such debt problems that the bankruptcy legislation was changed to make it easier to file bankruptcies and proposals. By the mid-1990s the government was concerned about recidivism ratios increasing as more people were coming back for second and even third insolvency filings.
As we transitioned away from using cash, starting with cash withdrawal cards in the 1980s and on to the debit card which allowed more complex transactions at ATMs in the 1990s the movement of money through the economy changed dramatically.
It is easy to trace the transition from the dominance of cash and cheques in the 1980s to the debt cards surging in the 1990s and finally credit cards topping both in the 2000s.
Between 1977 and 2018 the Canadian Bankers Association (CBA) published a statistical matrix showing a variety of information about credit card usage in Canada including the number of cards in circulation, the average spend on cards, the amount of cash withdrawals, and the total amounts charged on credit cards each year.
Since the CBA has removed the data from their website, the only was to access is to search internet archives. We asked Chat GTP to locate the data from the “waybackmachine” and divide it into five equal growth cycles to estimate what the Canadian credit card scene looks like today.
ChatGPT reported:
Baselines (from the CBA matrix era)
- Cards in circulation
• 1977: 8.2 million bank-issued cards.
• 2018: 75.8 million bank-issued cards.
- Total annual charges (purchase value)
• 1977: $3.6B.
• 2018: ≈ $600B (since $3.6B in 1977 was 0.6% of 2018 purchases, per the CBA series summary).
The “five-cycle” method you specified
- Span 1977→2018 = 41 years. Split into 5 equal cycles ⇒ 8.2 years per cycle.
Bottom line (five-cycle extrapolation)
- Bank-issued credit cards in Canada (2025 est.): ~116 million
- Total amount charged per year (2025 est.): ~$1.6 trillion
Clearly, credit card debt is out of control and as we will see below it currently exceeds disposable (after tax) income.
INCOME:
The Canada Revenue Agency reports ~32.9 million individual T1 returns filed in its 2023–24 fiscal year and that the most recent (2022) “average total income” for Canadian tax filers is $56,560. That is a total income of $1.8 trillion – before taxes. Source deductions alone average 33.5% leaving the total available income at $1.2 trillion or $36,474 annually or a take home of $3,039 per month.
The median before tax income is $43,090, meaning that half of all income earners in Canada earn less than that value. The government has declared the official poverty line to be half of the median income or $21,545 per year which represents about one third of all Canadians.
The bottom line here is that we spend 25% more on credit cards than we earn, and of course credit cards are not the only debts we have to pay.
SOLUTIONS:
The most obvious solution to Canada’s insurmountable debt crisis is to leave the country for good, and we have seen a significant brain drain in recent years. In order to discourage people leaving and taking their assets with them, the government has imposed “deemed disposition” taxes.
Increasing income is probably everyone’s goal, who wouldn’t like a pay increase? But in an economy that is in a state of crisis with rampant homelessness, growing poverty, empty foodbanks, and explosive levels of government funded opioid addition, there is precious little opportunity.
Decreasing expenses is the second thing that can be done from a budgetary perspective but that is of little avail in the face of skyrocketing inflation. We have very little control over the rising cost of living.
Government intervention is the elephant in the room – while we have been accustomed to the smoke and mirror shows we see very little of value (to consumers) being done by our government at any level and regardless of political stripes.
It is precisely government intervention that is needed to correct the Canadian debt vortex, and nothing short of regulation will provide a long-term solution for consumers.
REGULATORY SUGGESTIONS:
In fairness, following through on these suggestions will undoubtedly have repercussions for some economic sectors. Nonetheless, some concepts have already proven to be useful tools in protecting the public from predatory lending practices.
1. End multi layered mortgages, this could be done by the Provincial Government in a similar manner to Home Owner Protection Act that rendered all furnace, A/C and hot water tank registrations “expired”.
Deeming all mortgages other than the first mortgage expired does not eliminate the debt, but it would lessen the risk to homeowners from exploitative mortgage [practices.
2. Increase the Homestead Exemption under the Execution Act to an unlimited level. By doing so no Ontario homeowner would be threatened with eviction in the case of any insolvency proceeding.
3. Ontario could follow Quebec’s lead on regulating Credit Cards – changing the Minimum Monthly Payment to not less than 5% of the outstanding balance.
The Federal Government has the authority to regulate interest rates and could legislate a cap on credit card rates to a much lower level than the average of 21% – but don’t hold your breath.
Unfortunately, the reality is that the government is far more interested in protecting institutions and systems than its citizens. So, while these suggestions could help to rebalance the economy and bring inflation under control, it is highly unlikely they would be implemented.
There are of course other measures that could be implemented to correct the over reliance on debt in Canada, but they all require a political will.
WHAT YOU CAN DO:
Your options for dealing with problem debt are really limited, rolling debt from one vehicle to another is a very common but ineffective strategy.
- Moving balances from one credit card to another.
- Getting consolidation loans.
- Wrapping unsecured debt onto mortgages.
- Moving high interest credit card debt into lines of credit.
At the end of the exercise picking any one of these ideas does not reduce the debt, and the reprieve is usually temporary.
Understanding your rights.
People are often confused by the Limitations Act – but the nuts and bolts are pretty simple. If you have an aging debt upon which no payments have been made for two years or more, has not been acknowledged by you in writing and on which you have not been sued, the creditor cannot use any statute (law) to recover the money.
Yes, you still owe the debt but there is nothing that can be done to enforce its collection. Since the creditor essentially sat on its hands – usually because the costs exceeds the benefit – the only thing they can do is to give you a negative credit score. Understanding your rights, the limitations on your creditors’ options does give you power in negotiating a settlement that would not otherwise exist.
Debt Settlement.
A negative credit score may impede your ability to obtain future credit, but because the creditor has few collection options, they are far more likely to negotiate a “reduced” payment arrangement for the debt.
Bankruptcy.
While a bankruptcy ought to be your last choice it must be considered when contemplating the viability of a proposal – after all if your creditors can recover more money from a bankruptcy why on earth would they agree to a proposal that reduces expected recoveries? Most common assets are preserved during a bankruptcy, there are many exemptions that allow you to go bankrupt and keep your “stuff” – furniture, vehicle, clothing, RRSPs, Insurance policies, pensions, etc.
Proposal.
There are two levels of proposal that can be utilized by debtors, the first is Division One and the second is Division Two. As the names suggest these proposals are division under the bankruptcy legislation that was formerly called “The Bankruptcy Act” and is now known as “Bankruptcy and Insolvency Act”.
Division One.
A Division One proposal is for corporate debtors and individuals who owe more than $250,000 excluding a mortgage on a principal residence.
The voting scheme requires a majority in number of voting creditors as well as two thirds in dollar value of claims proven under the proposal for it to pass. If the proposal, or amendments thereto, is not accepted by the creditors the result is an automatic bankruptcy for the debtor(s).
Division Two.
By contrast, a Division Two proposal is only for individuals, not for corporations, and the total debt, excluding a mortgage on a principal residence must be less than $250,000 in aggregate.
The voting scheme for a Division Two proposal requires a simple majority (50% or more) of voting creditors, and unlike a Division One proposal a rejection by creditors does not result in an automatic bankruptcy.
At the end of the day, filing any insolvency proceeding in the face of very high inflation, declining incomes and surging debt becomes little more than a stop-gap measure for most consumers. It doesn’t take very long before falling back in the debt vortex.