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We think it鈥檚 important to learn about debt in Canada for four reasons:听

1. So you realize that many Canadians are financing their purchases. Knowing this can help to reduce the FOMO you might feel if your neighbours are driving nicer cars than you or taking more holidays. Since you can put it in perspective and balance the short-term joy of a purchase or vacation against the long-term stress of monthly payments.聽
2. The relatively easy access to debt products (once you have a credit score and history) can be overwhelming for newcomers, since you may not have as much practice managing your debt. Learning about Canadian attitudes towards debt can help you adjust your expectations and build better financial habits.聽
3. Knowing and understanding what debt you will have to repay if you end up as an 鈥榓verage鈥� Canadian can help you budget and plan for the future.聽
4. The amount of debt you have can impact your credit score, which can impact your ability to find a rental unit or get a mortgage, buy a car, and more.

Just How Much Debt Do 鈥楢verage鈥� Canadians Have?聽

Equifax figures from 2024 show an increase of 4% in non-mortgage debt in Q4 2023, as well as a decrease in the number of people paying off their credit card balances in full. There was also significant growth in the number of credit cards issued in 2023, showing increased demand for credit products.聽

In the real world, this translates to the following average debt levels (excluding mortgages) in :听

• 18-25 year olds have an average of $8,085 in debt.聽
• 26-35 year olds owe an average of $17,197.
• 36-45 year olds usually have a debt balance of $26,459.聽
• 46-55 year olds carry debt balances of $33,391 on average.聽
• 55-64 year olds have an average debt balance of $27,345.
• Those 65 and older typically owe $14,093.聽

The data shows that Albertans tend to carry the highest levels of debt, while those in Manitoba and Quebec owe the least.聽

What Types of Debt Do Canadians Owe?聽

The most common types of debt Canadians owe include lines of credit, credit cards, student loans, vehicle loans, and mortgages.聽

Let鈥檚 take a look into each of these types of debt:听

Car Payments in Canada

Canada is a country of vehicle owners. Around of Canadians own a car, with the average Canadian spending around of their household income on transportation. In 2024, the ticked up to $1,387 per month. And the average monthly cost to finance a brand new car reached somewhere around per month. Used cars average around per month.聽

FACT: The average Canadian has an auto loan balance of in Q1 2024.聽

While this spending is 鈥榓verage鈥� or 鈥榥ormal鈥�, it doesn鈥檛 mean it鈥檚 a good idea. There are quite a few financial experts who are vocal about how car payments are eating away your monthly finances (and wellbeing).聽

Budgeting For Your Car Purchase

Here鈥檚 what to do instead of signing the dotted line on whichever car you want and can *technically afford*, based on the monthly payment.聽

Make a list of wants vs needs in your vehicle.聽

Do you *need* a truck, or do you want one? If you鈥檙e buying it to haul snowboards to the nearest ski hill three times a year, could you rent on those days instead or ride with a friend? Can you afford gas for a gas-guzzler or do you need something that鈥檚 fuel efficient (so, smaller)?聽

It鈥檚 really helpful to differentiate between what you want and what you realistically need in a vehicle, so you can make a more clear headed decision about what you鈥檙e buying.

Save up to buy a car outright if possible.聽

If you鈥檙e considering buying or upgrading your car, weigh the benefits of a new or new-to-you vehicle against what an extra $598-$1,100 each month in your pocket would mean for your household budget and retirement savings.聽

Otherwise, if you currently have a car that works just fine but you want to upgrade, consider the benefit of saving up for an additional year or two so you can put down a larger down payment (or pay in cash), instead of taking on huge monthly payments to get a vehicle now.聽

Stick to a budget for your vehicle.聽

There are a few rules of thumb financial experts that are worth considering:

• Stick to 15% of your household take-home income per month on car costs. So, if you earn $80,000 as a household, you may bring home around $4,900 in Canada (depending on your province/territory). This means you shouldn鈥檛 be spending more than $735 per month on 鈥榯ransport鈥�, including car payments, registration, insurance, and gas. If you鈥檙e spending more than 15%, you鈥檒l need to tighten your spending in other areas.聽
• Dave Ramsey not owning more than half of your annual household income in vehicles, including toys. So if your household earns $80,000 annually, the total of cars, trucks, motorbikes, and seadoo鈥檚 should not be worth more than $40,000. While some of his guidance and commentary is controversial, this rule of thumb can be helpful for anyone looking to budget for car purchases.

Credit Card Debt

The average credit card balance in Canada has crept up to , up 9.4% since Q1 2023. To make the higher balance worse, the percentage of Canadians who pay off their full balance of their credit card each month is decreasing. This means more Canadians are accruing high levels of interest on higher balance. In other words, more debt that鈥檚 growing at faster rates.聽

This is not good news. Credit card debt usually carries extremely high interest rates and financial experts generally agree that carrying a credit card balance will harm your finances and impact your wellbeing.

This doesn鈥檛 mean that you shouldn鈥檛 use credit cards, however. It鈥檚 more important to practice living within your means and making sure you can pay off the credit card each month. If you鈥檙e not able to flex this muscle, then it鈥檚 worth considering cutting up the cards or throwing them in the freezer until you can build better habits.

Student Loans in Canada

Canadian students typically graduate with a Bachelor鈥檚 degree with between $21,000 (Quebec) to $43,500 (PEI) in debt, . We can guess that international students who take on loans to study in Canada are likely graduating with higher loan balances than Canadian students.聽

Tips For Newcomers on Managing Debt in Canada

We dug into some of the most popular podcasts and financial influencers in Canada to see if we could find some common threads of financial wisdom. Here鈥檚 what we came up with:听

Create a long-term vision for your life.聽

Long-term goals can help you make better decisions today by giving you perspective. These goals can also make it easier to stick to money rules you create for yourself to help you build better spending habits.聽

Here are some quick questions you can ask yourself to build a long-term vision:听

• What age do you want to retire or be work optional? How much do you need to save for that to happen? (We like this simple .)
• What do you want to be remembered for when you鈥檙e gone? Your fashion sense, being there for your loved ones, or your sense of adventure? There鈥檚 no right answer, but knowing this can help you prioritize spending where it really matters.聽
• What major life events do you need to plan for? (Consider home buying, car buying, retirement, starting or growing a family, starting or growing a business)

Then consider how your current money habits support (or detract from) those goals.聽

Live within your means

Easy access to debt can make lifestyle creep and living beyond your means easier in the short term. It means you can get that dream car now, with a huge monthly payment 鈥� or you can get those shoes and pay them off in six months.聽

This isn鈥檛 necessarily a bad thing. Accessing debt responsibly and sensibly can help you balance your needs today with the income you have coming in tomorrow. But it鈥檚 important to practice only buying things on credit that you can truly afford to pay off 鈥� and to understand the total cost of financing.聽

We鈥檝e written in more detail about managing your money.聽

Don鈥檛 use 鈥榤onthly payments鈥� as a measure of affordability聽

Many people use the total monthly payment as the basis for the decision about whether to buy something. While the monthly payment is important, it鈥檚 also important to look at the total cost of ownership. The total cost reflects interest paid, fees, and other expenses.聽

The reason this is helpful is because lower monthly payments might seem manageable, but they can lead to longer loan terms, higher overall interest costs, and a false sense of financial security. Additionally, relying on monthly payments can encourage taking on more debt than is sustainable, limiting your budget and reducing your financial flexibility. Instead, consider the total cost of ownership and how it fits into your broader financial goals and budget to make sound financial decisions.

Learn more about our partner Scotiabank.

Implement systems and rules for determining what you can afford聽

Systems and rules can help to reduce the number of decisions you have to make each month about your finances, which can help keep you on track financially. Here are a few systems and rules you might consider:听

• Pay yourself first: Contribute around 10-15% of your income to your RRSP/TFSA first to pay for your retirement. Then automate 5-10% into a savings account, so you never see the balance in your checking account.聽
• Automate sinking funds: If you have predictable costs, like property taxes, home repairs, or vehicle maintenance, automate your savings for those costs. You can add a smaller amount each month to cover these costs so the large expenses don鈥檛 totally derail your monthly budget. Again, it鈥檚 helpful to do this as soon as possible after you鈥檙e paid so you don鈥檛 鈥榤iss鈥� the money.聽
• Use the 50/30/20 rule: 50% of your income to needs, 30% to wants, and 20% to savings/investments. This rule is great because you can spend that 30% totally guilt free and know you鈥檙e still taking care of your future self.聽

Keep an emergency fund

Personal finance experts agree about the importance of an emergency fund. Generally speaking, they recommend saving 3-6 months of your bare bones expenses for your emergency fund. But what they don鈥檛 often mention is that saving up an emergency fund can take a year or even longer 鈥� and that鈥檚 okay.聽

If you know it鈥檚 going to take you some time to save your emergency fund, start with (and celebrate) smaller milestones to stay motivated.聽