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

Six in 10 Atlantic Canadians 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.

Downtown Charlottetown from above the water

CHARLOTTETOWN, PEI – October 4, 2021 – The latest MNP Consumer Debt Index raises red flags about Atlantic Canadians’ 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 (59%) are at least somewhat likely to borrow more before the end of this year, including four in 10 (41%) who say they’re inclined to use a credit card that already carries a balance — the largest proportion compared to the other provinces. 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 (18%) Atlantic Canadians this fall. Around the same number (25%) are looking at purchase finance options, and 16 percent say they’re likely to apply for a new credit card. Moreover, six percent are considering a payday loan.

“Buy now, pay later options, payday loans, and credit cards are appealing to some who are struggling to make ends meet — but many underestimate or misunderstand the payment terms, fees, and interest charges,” says Walter MacKinnon, a Charlottetown-based Licensed Insolvency Trustee with MNP LTD. He cautions Atlantic Canadians about the allure of borrowing more through quick credit and BNPL offers increasingly touted by online retailers.

“Retail incentives that offer the instant gratification of buying goods now and paying later are not always good value for consumers. These credit options benefit the lenders the longer people stay in debt because of the high interest costs and various fees for processing and/or late payments,” he warns.

Rock bottom interest rates have left Atlantic Canadians feeling more comfortable with increasing their debt. Notably, more than half (54%) say they’re more relaxed about carrying debt than usual — up a staggering 13 points since last quarter, the largest increase compared to other regions in Canada. Moreover, Atlantic Canadians are the most likely (64%) to say the low interest rates provide a good opportunity to buy things they otherwise couldn’t afford.

But Atlantic Canadians also know the low interest environment must end at some point. With nearly half (47%, +3pts) reporting they are $200 or less away from financial insolvency — including a quarter (25%, +1pt) who say they already don’t make enough to cover their bills and debt payments — it’s unsurprising the majority (53%, +2pts) are concerned about the impact of rising interest rates on their financial situation. Compared to other regions, Atlantic Canadians are the most likely (43%) to say they’re concerned rising interest rates could move them toward Bankruptcy — up a staggering 16 points since the last quarter, the largest increase amongst the other provinces.

“Debt can be a slippery slope, and I think the research suggests it’s becoming more difficult to manage. Sometimes people try to solve a debt problem by taking on more credit. 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 outcomes that can make debt repayment next to impossible without professional debt help,” says MacKinnon.

With uncertainty around the fourth wave of COVID-19, Atlantic Canadians express some concern about their ability to cope with life changes without increasing their debt load. Many say they couldn’t cope financially with an unexpected auto repair (23%, +5pts) or having an illness and being unable to work (34%). The latter increased a staggering 17 points since last quarter. Additionally, significantly more (35%, +11pts) don’t believe they could cope 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 rising costs. This may be another reason many are thinking about taking on more debt through riskier or higher interest options,” says MacKinnon.

Affordability concerns are widespread across Atlantic Canada, with a large proportion believing life’s necessities have become more expensive over the past year. Forty-two percent say it’s becoming less affordable to feed themselves and their family. One in three (32%) say housing costs are less affordable, and around the same number say clothing or household necessities (33%) and transportation (30%) are costing more. More Atlantic Canadians also say it’s becoming harder to put money aside for savings (44%) or towards their debt (34%).

“Unmanageable debt is stressful enough on its own. When there’s already virtually no wiggle room in the household budget and the cost of living rises, people can start to feel hopeless. But there is help available. Licensed Insolvency Trustees are qualified professionals specifically trained to get you out of debt. We help even the most indebted people find relief from financial stress and begin working toward a financial fresh start,” says MacKinnon.

Every Atlantic Canadian 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.