As the cost of living continues to rise, more Canadians are increasingly turning to credit, with the average credit card balance now at $4,000, according to a new report from TransUnion.

Data from the TransUnion Credit Industry Insights Report for Q2 2023 showed an increase of 4.2 percent, or $94.8 billion, in Canadian household debt compared to the previous year, totaling $2.34 trillion in debt for Canadians.

According to the report, this growth was primarily driven by mortgage loan debt, which maintained a steady growth rate for the fifth consecutive quarter with a year-over-year increase of 9 percent, alongside a rebound in existing home sales.

To assess Canadians' financial management and debt handling, TransUnion examined demand, supply, consumer behavior, and performance for its Credit Industry Indicator. In Q2 2023, this analysis resulted in Canada achieving a Credit Industry Indicator score of 106, representing an increase of 1.6 points compared to the same period in 2022.

However, current Credit Industry Indicator levels align with pre-pandemic levels, with a slight year-over-year increase driven by rising demand for credit.

Additionally, the report noted that rising levels of debt and increasing interest rates have led to higher minimum payments, placing further pressure on consumers who are already experiencing financial strain.

The report also highlighted that while Canadian credit consumers have historically shown resilience, there are now signs that some individuals, such as Generation Z, are struggling at the start of their careers in this high-interest-rate environment.

Matthew Fabian, Director of Research and Consulting for Financial Services at TransUnion Canada, stated in a press release: "Canadians, like the economy, remain resilient." "However, the combined pressure of rising living costs and increasing interest rates has created a payment shock, making the cost of debt heavier for some Canadian households. While some financial pressures have been offset by ongoing savings growth and strong employment, many Canadian consumers have turned to credit as a means of short-term liquidity.

The data also indicates that the number of Canadians with credit card debt increased by 3.3 percent in Q1 2023, and consumers across all risk categories are accumulating more debt, with the riskiest group being mortgage consumers with lower credit scores, witnessing an 8.9 percent year-over-year increase in their debt levels.

According to the report, there was a 9% increase in average consumer balances across credit products, exceeding $4,000. This is primarily due to high spending habits, as the average consumer spent $2,100 on their cards in Q2 2023 (a 1.5 percent increase from the previous year). Even consumers with low credit scores raised their spending to $1,300, an increase of 4 percent year-over-year. However, along with increased spending, the amount consumers are paying on their card balances each month decreased by 2.8 percent year-over-year.

The data also showed that demand for new credit cards continued to rise, with a 17 percent increase in Q2 2023 compared to the previous year. Specifically, demand from first-time and lower-tier consumers rose by 15 percent, while better-performing consumers saw a 12 percent growth in credit demand.

When it comes to lenders, the report shows that they have responded by achieving 12 percent year-over-year growth in origination volumes. This indicates increased risk appetite among lenders, with non-mortgage assets growing by 16 percent and primary and superior assets by six percent.

Fabian explained, "This additional minimum payment has put pressure on some household finances, forcing consumers to make trade-offs regarding how much they can allocate to cover additional debts." "The sudden and often unexpected rise in the minimum payment is referred to as payment shock and can have severe consequences as some consumers are forced to decide how to allocate discretionary income, and in some cases, which bills or debts to pay."