Low interest rates and rising costs leading many Albertans down ever-riskier path to borrow more

Six in 10 Albertans are likely to pile on more consumer debt before the end of the year, including one in five who will use buy now, pay later options.

View of Calgary skyline at sunset

CALGARY, AB –October 4, 2021 – The latest MNP Consumer Debt Index raises red flags about Albertans’ plans to borrow more — and in potentially riskier ways — to make ends meet or finance their purchasing habits heading into the holiday season.

Six in 10 (58%) are at least somewhat likely to borrow more before the end of this year, including nearly four in 10 (36%) who are inclined to use a credit card that already carries a balance. Buy now, pay later (BNPL) options which have boomed alongside the pandemic-induced spike in online shopping and financial instability will likely be the method of payment for one in five (19%) Albertans this fall. Fifteen percent are looking at purchase finance options, and the same number say they’re likely to apply for a new credit card (15%). Moreover, one in 10 (7%) are considering a payday loan.

“Buy now, pay later options, payday loans, and credit cards can seem like attractive options, especially for those who are struggling to make ends meet. The problem is payment terms, fees, and interest charges are largely underestimated or misunderstood — and can leave people worse off,” says Donna Carson, a Licensed Insolvency Trustee with Alberta-based MNP LTD. She cautions Albertans about the allure of borrowing more through quick credit and BNPL options increasingly touted by online retailers.

“Retail incentives that offer the instant gratification of buying goods now and paying later can be risky if you can’t afford to pay them back on time,” she warns. “Most credit offers are designed so the lender benefits the longer it takes to repay the debt. You end up paying a lot more once you factor in the high interest costs and various fees for processing and/or late payments.”

Even with rock bottom interest rates, Albertans are feeling less comfortable about adding to their debt. Compared to the other provinces, Albertans are the least likely (34%) to say they’re more relaxed about carrying debt than usual — even in a low rate environment — down eight points since last quarter. Moreover, Albertans are also the least likely (52%) to say low interest rates provide a good opportunity to buy things they otherwise couldn’t afford.

Household finances in Alberta are particularly tight, with half (50%) reporting they’re $200 away or less from financial insolvency, an eight-point jump since last quarter and the largest increase among all provinces. That proportion includes three in 10 (31%, +6pts) who say they already don’t make enough to cover their bills and debt payments — also the highest proportion compared to the other provinces. It is therefore unsurprising that Albertans are significantly more likely (60%, +4pts) to say they are concerned about the impact of rising interest rates on their financial situation. One in three (34%, -1pt) are concerned rising interest rates could move them toward Bankruptcy.

“What people need to remember is you’re taking a financial risk every time you borrow. Interest rate increases, unexpected income loss, emergency expenses, or life-changing events are all potential situations that can put you in a cycle of debt that is nearly impossible to get out of without professional debt help,” says Carson.

With uncertainty around the fourth wave of COVID-19, Albertans express some concern about their ability to cope with life changes without increasing their debt load. Many say they could not financially cope with an unexpected auto repair (25%, -5pts) or having an illness and being unable to work (31%, +2pts). One in four (26%, unchanged) are bearish about their ability to cope financially with a loss of employment or a change in work without going into debt

“In addition to the unexpected financial turmoil brought on by the pandemic, another issue we see playing out in our research is households are struggling more with the rising cost of living. With the price of necessities increasing, some may take on more credit to make ends meet while others will have less room in the budget for debt repayment,” says Carson.

Affordability concerns are widespread in Alberta, with a large proportion believing life’s necessities have become more expensive over the past year. Compared to the other provinces, Albertans are the most likely (52%) to say it is becoming costlier to feed themselves and their family. They are also the most likely to say transportation (46%) and housing costs (37%) are less affordable, and around the same number (36%) say clothing or household necessities and are costing more. Albertans are also significantly more likely to say that it is becoming harder to put money aside for savings (54%) or towards their debt (40%).

“The pandemic has caused financial turmoil for many households. Couple that with rising costs, and many just can’t cope. If you’re no longer able to manage your debts, a Bankruptcy or Consumer Proposal may provide the relief and financial cushion you need to recover. You don’t have to be in dire straights to contact a Licensed Insolvency Trustee and discuss your options. Waiting until that point simply adds needless stress and suffering,” advises Carson.

Every Albertan can obtain a free and confidential assessment of their financial situation with a Licensed Insolvency Trustee. As the only government-regulated debt professionals, they provide a full range of debt-relief options, including Consumer Proposals, informal debt settlements, and Bankruptcies.

About MNP LTD

MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency practice in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working with individuals to help them recover from times of financial distress and regain control of their finances. With more than 240 offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit MNPdebt.ca to contact a Licensed Insolvency Trustee or use our free Do it Yourself (DIY) debt assessment tools. For regular, bite-sized insights about debt and personal finances, subscribe to the MNP 3 Minute Debt Break Podcast.

About the MNP Consumer Debt Index

The MNP Consumer Debt Index measures Canadians’ attitudes toward their consumer debt and gauges their ability to pay their bills, endure unexpected expenses, and absorb interest-rate fluctuations without approaching insolvency. Conducted by Ipsos and updated quarterly, the Index is an industry-leading barometer of financial pressure or relief among Canadians.

The Index has dipped by two points since last quarter to 95 points, having remained steadily below the established benchmark of 100 points for the last two years.

The latest data, representing the eighteenth wave of the MNP Consumer Debt Index, was compiled by Ipsos on behalf of MNP LTD between September 3-7, 2021. For this survey, a sample of 2,001 Canadians aged 18 years and over was interviewed. Weighting was then employed to balance demographics to ensure that the sample’s composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to, coverage error and measurement error.