Household debt on the rise
Household debt hit $2,811 billion in November 2022, as consumers grappled with rising inflation and interest rates.
Millennials owed an average of $47,283 in unsecured debt in 2022 with 87 per cent owing credit card debt, and one in three carrying student loan debt as well. Student debt makes up about 30 per cent of their total unsecured debt.
And when you factor in the fact that housing affordability is at its lowest level in history, these young(ish) adults face an additional hurdle to building wealth.
"The average insolvent millennial is just 33 years old, yet they are 1.7 times more likely than baby boomers and 1.4 times as likely as generation X to file insolvency, relative to the population," said Ted Michalos, Licensed Insolvency Trustee said in a press release.
"We've noticed an overall trend since 2016 that the average insolvent borrower continues to get younger, with student loan debt and extremely high-cost loans being the main drivers of their insolvency."
Millennials may be in their prime homebuying years — but on top of the affordability crisis, they’re also currently contending with mortgage rates close to 7%.
According to the study conducted by Licensed Insolvency Trustees Hoyes, Michalos & Associates Inc., the average insolvent debtor is holding mortgage valued at $395,545.
Although now may not seem like the best time to refinance your home loan, rates are expected to fall later in the year — so you’ll want to keep an eye out for the chance to slash your monthly expenses or the lifetime cost of your loan.
Borrowers in their 30s are struggling with the highest credit card debt. According to the study 87 per cent of millennials owed credit card debt, with the average owing $13,948. That's up 1.5 per cent from 2021.
That’s a massive shift from the peak pandemic times, when many consumers used all that cash they saved not dining out, traveling or commuting to work to pay down their debt.
When you don’t pay your credit card bill on time, you risk harming your credit score and adding up on interest and late fees — exacerbating your existing debt and making it more difficult to pay off.
If you’re juggling multiple lines of credit at a time and forgetting what’s due when, it might be helpful to consolidate them into a single loan, so you’ve just got one bill to keep track of each month.
Auto loans and insurance
Aside from drivers in their 20s, this age group is also missing the most auto loan payments, says the New York Fed. Millennials as a whole currently make up the largest demographic of car buyers in the U.S.
Auto loans or leases were a big part of the average insolvent debter who held $9,033 in non-mortgage secured debt in 2022. That's on top of $49,316 in unsecured debt. Canadians aged 18-34 were more likely to buy a car (53 per cent) in the near future, than those aged 55+, according to Canadian Black Book's 2022 Ipsos survey.
Before buying a new set of wheels, make sure you’ve done the math and budgeted accordingly, and stay away from predatory loan rates. With a strong credit score, you could land a rate of between 6% to 8%.
But the best way to ensure you save on your car-related expenses is to shop around for the best rate on insurance.