recover from debt

Rising Debt Amongst Gen-Z, Millennials

For the first time in Canadian history, debt held by the millennial generation has surpassed the value of debt held by baby boomers.

In the past year, millennial debt has increased 12.3% to a total of $515.9 billion, according to an article from The Huffington Post . The increase in debt, however, is not being initiated by the typical borrowing and lending patterns of years past. Millennial and Gen-Z borrowers are trending away from mortgages and towards utilizing loans and lines of credit to cover everyday living expenses, auto and student loans, and experiential purchases like travel.

Matt Fabian, the Director of Research and Industry Analysis at TransUnion Canada, notes that the millennial age group is focused on managing in the short term rather than trying to plan for the future. This could be attributed to the fact that Canadian interest rates are low, and look to remain low in the future. With low interest rates on borrowing, the prospect of taking out loans to cover day to day living, education, or to pay for experiences seems manageable, but millennials have never experienced a high interest environment in which debt becomes much more expensive.

Further adding to rising millennial debt is the prevalence of non-traditional lenders and fin-tech platforms who’s mobile apps align with the interests of millennials. Today, a millennial can be approved for a sub-prime loan with interest rates 15-20% above the national key interest rate without ever visiting a physical location. Debt at these rates is unhealthy, and could be devastating if interest rates were to rise.

To combat the likelihood of massive loan defaults, Fabian expects to see more stringent controls on borrowing. As it stands, there are stress tests applied to mortgages in Canada that determine your ability to afford payments at rates higher than the one you have agreed upon contractually with your lender for a period of time. If Fabian’s predictions are correct, we could see this approach applied to auto loans and individual lines of credit as a safeguard.

So what does this mean for young people in Canada?

Millennials need to proceed into any form of debt with caution. Although debt is “affordable” for the time being, and certain forms of debt issued and paid efficiently are necessary, debt can quickly become unmanageable. A form of debt that has become a hot-button issue for millennials is student loan debt. Young people are graduating with more student loan debt than any generation before, and many are finding themselves in the insolvency funnel after the 7 year rule time limit passes over. The rule lays out that “A discharge from bankruptcy releases you from your obligation to repay your student loans if you filed for bankruptcy at least seven years after the date you ceased to be a part or full-time student”. So while we are seeing an increase in millennial debt, we are also seeing an increase in the amount of millennials filing for bankruptcy in Canada.

What can millennials do when debts become unmanageable?

Whether it be the result of an expensive education, mismanagement of borrowed funds, emergency situations, or the increasing cost of living, you are not alone if your debts have become unmanageable. The best case scenario is seeking help and learning that cutting your expenses and closely managing a budget can help you recover from debt without seeking a binding remedy, but for some, this is not a reality. If your debts have become unmanageable to the point that your wages are being garnished, you are facing eviction, or you feel there is no way out, there are options that can have you out from beneath your debt quickly, painlessly and affordably. Consumer proposals and bankruptcy can eliminate a large portion of your debt affordably and quickly. Reaching out to a Licensed Insolvency Trustee who is able to file bankruptcies and consumer proposals in Calgary can provide you with a better sense of your current financial situation, and clarify the actions you might want to take. Consultations are free, confidential, and help to inform you about just how much you owe.