However, this is not bad news behind a horrible title, and there is a chance to help young people, especially to understand the difference between good debt and bad debt.
So, where is the good news?
At the end of the first quarter of 2025 (Q1), Canada’s total consumer debt was CAD 2.5.5 trillion, a year-on-year increase of 4%. It’s a big number, and it’s interesting that the federal government’s record debt has just exceeded $1.4 trillion.
Still, the amount of consumer debt has dropped by more than $6 billion since the end of 2024. While average non-collateralized debt rose to $21,859 per person in the first quarter of 2025, there may be some valid reasons.
Age is a factor in debt collection
Statistically speaking, debt is a recurring problem for young people. As you age, debt decreases – especially when it comes to mortgage debt, which makes sense. Nevertheless, it is surprising how long both student debt and consumer debt last, as shown below for the mid-2024 data.
According to the Equifax Canada Market Pulse quarterly Consumer Credit Trends and Insights Report, one of the key culprits, especially for young people, is a strong auto loan market. There may be a legitimate reason.
Car buyers appear to be responding to the tariff issue, hoping to lock in their purchases before the expected price rises. To know if you can really afford a vehicle, do credit math in advance – not only the label price, but also the interest in the life of the car loan. How to reduce it?
Seek help from a tax or financial advisor to see if your car loan can be tax deductions or can help reduce after-tax costs. Certain operating costs, such as gas, oil or electric vehicle charging, and a portion of fixed costs (such as interest or capital cost allowances), can be cancelled through appropriate documents when the vehicle is used for employment or self-employed purposes. Talk to a tax expert. (Also read: How to save taxes using car logs.)
Mortgage Mathematics
In the first quarter of 2025, new mortgage applications increased by 57.7% year-on-year. This is largely attributed to the number of mortgages renewal and refinancing, many of which are at higher interest rates. Interestingly, first-time home buyers returned to the market, with activity up 40% from the same period last year.
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But while average monthly payments may be declining now due to current lower interest rates, the average loan size is increasing, up 7.5% year-on-year. It is important to consider what the next renewal cycle looks like for today’s new debtors.
According to data from Bank of Canada research, 60% of people with mortgage renewals in the next two years will face payments. Factors that raise interest rates include high inflation, low savings rates, reduced trade, decreased labor productivity, high government debt and default risks. Today, many factors are at work.
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Crime: They are non-account debts
But when it comes to credit crimes, financial stress is actually worse for consumers who don’t hold mortgages. In this cohort, crime rate increased by 8.9% year-on-year, compared with 6.5% mortgage holders. Similarly, young Canadians (18 to 25) took the biggest hit, with crime rates rising by 15.1%.
On the positive side, average monthly credit card spending per card holder fell by $107 in the first quarter of 2025, the lowest level since March 2022.
Remember that not all debt is bad debt. There are several simple but important rules when judging good debts and bad debts:
- Borrow appreciation assets. If you have to buy depreciated assets, make sure it is income-generated – it can help you earn income from employment or self-employed, or earn income from other investments like a business or leased property.
- Consider whether interest is tax-deductible. For example, consumer debt is bad debt – it is expensive and not taxable. Unless you owe the Canadian Revenue Agency (CRA), pay it off first, in which case the amount owed needs to be prioritized.
- Borrowing investment registration account is not deductible. An important tax tip is that interest on investing in a registered retirement savings plan (RRSP), tax-free savings account (TFSA), first savings account (FHSA), etc. will not be deductible. Keep this in mind in your financial plan.
Debt tips for better cash flow
Here are some effective ways Manage debt and recover controls on net cash flow:
1. Pay off high interest rates as soon as possible, undeductible debts. This includes credit card debt and high interest loans that cannot be written off on tax returns or used to build your net worth.
2. Consider consolidating debts to pay off the smaller amount first. Get rid of “debt chaos”, but keep two categories: tax deductible debt and non-deductible debt.
