By Monica Gutschi Of DOW JONES NEWSWIRES
Canadians are getting better at managing their consumer debt: consolidating their credit cards, keeping up with their monthly payments, and transferring their debts to lower-income vehicles like lines of credit.
However, an inaugural quarterly survey by credit agency TransUnion, released Tuesday, shows that overall debt levels continue to rise even as Canada slowly emerges from the 2009 recession. Canadians carried an average household debt of C$25,163 excluding mortgage debt, in the third quarter of 2010, up 4.3% from a year ago. Still, TransUnion said the pace of growth has slowed significantly from the double-digit increases posted during the economic slump.
"The trends are saying that we are seeing some moderate improvement," Thomas Higgins, the vice president of analytics and decisioning for TransUnion's Canadian office, said in an interview. "Canadians are starting to come out of the recession and are proactively managing their credit."
He said the survey, which measured how 24.8 million Canadians use credit, found that Canadians are carrying fewer credit cards and doing a better job of keeping up with their payments. Among the most significant findings was that past-due balances have dropped 15% in the third quarter from a year earlier, which was the recession's nadir.
Moreover, the number of delinquent credit accounts has dropped to 88 in the third quarter of 2010 on an index where 100 was the level in the year-ago quarter.
"This is an early indication, but hopefully a sign of what's to come," Higgins said. While derogatory accounts--or those that have entered foreclosure, repossession, bankruptcy or write-off--rose to an indexed 124 in the latest quarter, he noted this is a lagging indicator that reflects the economic conditions of a year earlier. An account becomes delinquent after it is between 90 to 120 days past due, but becomes derogatory after several payments are missed.
Higgins noted that changes in the country's economic conditions don't seem to have an immediate impact on consumer credit trends, but do influence where consumers hold that debt. For example, as interest rates have fallen over the past few years, consumers have reduced their credit-card debt and increased the balances in lower-interest lines of credit, installment loans or revolving loans. In fact, debt held in revolving accounts rose 17.5% in the quarter.
Many Canadians use their credit cards to earn the loyalty points tied to the account, Higgins said, then move the balance to a lower-interest vehicle like a line of credit where the payments are more flexible in order to pay off the balance more slowly.
The popularity of card rewards has also contributed to the increase in short-term credit-card debt, he noted. Canadians held an average aggregate balance of C$3,709 on their credit cards in the third quarter, which is down from a peak of C$3,772 a year earlier, but up from C$3,614 in the second quarter.
Still, the number of active credit cards fell 3.5% in the third quarter, the fourth consecutive quarterly decrease, TransUnion found. The average Canadian credit-card consumer now holds 1.75 cards, down from a high of 1.9 cards in the first quarter of 2009.
"That indicates consumers are really trying to proactively manage and bring their credit into line," Higgins said.
-By Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com
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