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What is ‘Payment Shock’ – and Why are Canadians Vulnerable to It Right Now?

Woman holding a credit card and typing on a laptop

If you’re still reeling from the previous interest rate hike, the Bank of Canada’s latest increase for September by 0.75 percentage points may feel like more salt on a wound. And, increasingly, you’re not alone. The added financial pressures mean that borrowing money just got even more expensive, as higher household debt butts up against skyrocketing interest rates (themselves implemented to stifle skyrocketing inflation, in an effort to displace where and what Canadians pay more for). With this in mind, experts are now warning that many Canadians are at risk of experiencing “payment shock” — but what is payment shock, and what does it mean? 

Related: Is Canada in a recession? 3 telltale signs to watch out for.

Payment shock refers to the dramatic increase in a person’s debt and how much they owe (liabilities), making it impossible for them to cover even minimum payments, and leading them to default on their financial commitments. 

What could be making people especially vulnerable to payment shock right now? The pressure to seek financial relief in further loans or credit cards to cover debts and pay for essentials could lead to a breaking point for more and more Canadians, particularly those who were already facing economic insecurity.

See also: Affordable housing for who? Students in Canada pay more in rent than the general population: Survey.

This comes at a time when everything from groceries, to gas, to heating your home continues to cost soberingly more. 

“Anything that has a variable rate attached to it, like the lines of credit, we’re going to see a huge payment shock,” Meridian Credit Union senior wealth advisor Paul Shelestowsky said via Global News. “Everything is more expensive — buying groceries, heating your home, the basics — and now servicing your debt will cost more too.”

Credit reporting agencies Equifax Canada and TransUnion Canada, which rate your credit score, also have insight on the struggle many are facing. Both Equifax and TransUnion recently released reports noticing an upward trend in household debt. 


TransUnion Canada also saw credit card balances and the risk of consumer delinquency on personal loans increasing. 

You may also like: What is ‘cash stuffing’ and how does it work?

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