The overwhelming majority of Canadians (80%) may be in debt but at least it’s mostly good debt, according to a new BMO report.
Earlier this summer Pollara sampled 1,001 Canadians from an online poll for BMO and found the average Canadian’s debt load is up from $76,140 per person last year to $93,000. Today, the bank revealed what’s keeping Canadians in debt. Nearly half of respondents cited buying real estate a main contributor to their debt load, with 34% listing it as the main factor.
One-in-10 said home renovations were among their top reasons for going into the red. And about the same number hold student debt, the survey found.
“Given the angst about high debt burdens, it’s somewhat comforting to know that Canadians are generally accumulating good debt to finance investments in their homes and educations, as opposed to bad debt such as discretionary spending on vacations and entertainment,” said Sal Guatieri, senior economist, BMO Capital Markets.
But before you go patting your neighbour on the back for their responsible use of debt, take a look at how many Canadians are going into debt for things like cars, vacations and entertainment. Almost as many Canadians listed an auto loan among their top sources of debt as did a mortgage. In fact, 18% of Canadians cite a car loan as their biggest source of debt and that number could very well rise as automobile sales continue soar past record levels thanks in large part inexpensive credit and extended loan terms.
“While rates are at all-time lows, it’s important that Canadians are aware of the risk associated with taking on additional debt, regardless of its purpose. Having a financial plan which includes careful budgeting and asset allocation can help avoid any risk and uncertainties,” said Sameh Elrefaei, head of personal lending, BMO Bank of Montreal.