With COVID-19 savings, Canadians paid down $16.6 billion in credit card debt in less than a year during pandemic

Canadians used their money wisely during the COVID-19 pandemic.

They paid credit card debt totalling $16.6 billion in less than a year.

A new study shows an outstanding balance on credit cards amounting to $90.6 billion “just prior to the pandemic in February 2020”.

The balance fell to $74 billion in January 2021, for an 18.3 percent decline in less than one year.

“By way of comparison, in the two decades prior to the pandemic, the outstanding balance carried on credit cards had risen on average by 20.7% per year,” Statistics Canada said in a summary.

The study is titled “Trends in household non‑mortgage loans: The evolution of Canadian household debt before and during COVID‑19”.

A summary in Statistics Canada’s The Daily stated that Canadian households saw their disposable income rise during the pandemic.

This was “due in part to the limited opportunities to spend money during the lockdowns as well as the monetary support provided by governments”.

“Many households used this opportunity to pay down expensive non-mortgage debt, with the balances of unsecured lines of credit and credit cards being paid down in record amounts,” Statistics Canada stated.

Moreover, the “largest reductions in debt loads were among those with the lowest credit ratings”.

This suggests that Canadians “most vulnerable to financial hardships were able to use savings prudently during the pandemic”.

“With the economy now reopening, many Canadian households could find themselves carrying lighter non-mortgage debt balances than they had going into the pandemic,” Statistics Canada stated in the summary.

The 24-page study was prepared by Michael Daoust and Matthew Hoffarth.

The authors observed that “as lockdowns came into full effect and non‑essential businesses were forced to close their doors in late March, household consumption plummeted, and the year‑over‑year growth in non‑mortgage debt slowed to near zero in April”.

“Despite resilient household incomes and the roll‑out of government support measures to Canadians, households had few places to spend, and many used the pandemic lockdown as an opportunity to save and pay down existing debt,” Daoust and Hoffarth wrote.

They also stated: “As disposable incomes surged, May 2020 marked the first year‑over‑year decline in the outstanding balance of non‑mortgage debt in nearly three decades.”

To read the study, click here.