A recent report by CIBC said that Canadian households have increased their debt loads in the first six months of the year by $44 billion. We have lower interest rates to thank for that.
As dismal as the debt number sounds, it is not as bad as it looks on paper. More Canadians are making moves in the housing market, thanks to historically low interest rates, which means the majority of the debt is principal rather than interest.
In some recessions, we have seen soaring interest rates, which means a large portion of the debt we owe is actually the interest on loans, mortgages, lines of credit and so on. However, this time around, the interest portion of household debt is reportedly 7.7%; the rest of the debt is the money we borrowed.
While a surge in household debt is not always comforting to the economy, lower interest rates allow Canadians an even chance to get ahead of their debts. However, whether or not we do that remains to be seen.
