More than one in five Canadians expect to take on more debt in 2025, mostly via credit cards, according to a TransUnion consumer report that experts say shows many focus on “surviving.”
TransUnion’s fourth quarter Consumer Pulse study, released on Tuesday, surveyed 1,000 adults between Sept. 25 and Oct. 6 about their expectations for 2025.
That study found about 22 per cent of Canadians plan to take on more debt either by applying for new or refinancing existing credit in 2025.
According to TransUnion, the type of credit product most favoured is credit cards with 43 per cent of that one in five people planning to apply. The next type of loan activity is increasing available credit on a current card.
The expectation of taking on more debt comes even as the Bank of Canada continues to lower its key interest rate and inflation continues to cool.
But Matthew Fabian, TransUnion Canada’s director of financial services research and consulting, said though both are coming down there is a “lag effect” for Canadians to see the benefit due to the financial strains they faced previous years.
“Cost of living was up at the same time the cost of debt was higher, especially if you had something like a mortgage, and interest rates went up, all of a sudden it cost you more to carry that debt, and so that combination really stressed a lot of consumers wallets and created what we call this payment shock,” Fabian said.
About 44 per cent of households said their finances were worse than they planned for 2024 despite more than half saying their income remained the same for the previous three months, with no expectation it would change in the following year.
The study also found 26 per cent of Canadians expect they won’t be able to pay at least one of their current bills or loans in full.
While Canadians of all generations were feeling a squeeze, Millennials were the highest percentage of consumers with 35 per cent saying they wouldn’t be able to pay a bill in full.
The study also found this generation holds 27 per cent of credit accounts and has surpassed baby boomers for the first time.
“Consumers are saying they’re potentially having trouble making ends meet and paying 100 per cent of their debt or their bills or loans or obligations,” Fabian said.
An Ipsos poll done exclusively for Global News in December found one in four respondents ranked inflation and the cost of living as their top priority in Canada today, with young Canadians particularly feeling the pinch due to struggling to find a job or being unable to break into the housing market.
That poll showed affordability anxiety was particularly high in Canada compared to peer countries, with Canadians among the top five globally for their concerns around affordability for the second year in a row.
“It comes down to circumstances. A lot of people see getting another credit card as just surviving for another day,” said Barry Choi, personal finance expert at the Money We Have.
“They get access to that credit card and then they’re paying off the old bills, but then obviously they have to pay off the new credit card bills. So it is a little bit of a catch-22.”
People should be cautious when it comes to taking on credit card debt, both Choi and Fabian note, saying that if you’re only paying off a small amount of your balances at a time, interest will accumulate and you may face a bigger total cost.
However, Fabian added it’s still better to pay a small amount that you can afford than miss a payment altogether.
While Canadians are likely to see some easing of the pain as inflation and interest rates continue to stabilize in 2025, the study showed a majority plan to change their financial habits in the new year, with some wanting to do so in preparation for a potential recession.
About 71 per cent said they planned to reduce spending, with discretionary costs like dining out and travel the most prominent option to changing the household budget.
Another 36 per cent of people said they plan to build up their savings, while 33 per cent said they’re working to pay down debt.
“Canadians are taking proactive steps,” Fabian said. “They’re thinking about it in the context of, ‘Well, if this [economic uncertainty] is going to happen again, I have to be better prepared.’”
—with files from Global News’ Craig Lord