Huge increase in number of people seeking credit counselling amid challenging economy

For the Credit Counselling Society–the last year has been very busy.

“Looking at activities this January to last January, the number of people reaching out to us is up over 100 per cent,” said Scott Hannah, president & CEO of Credit Counselling Society. “We’ve had to hire additional staff, just so we can meet demand for consumers.”

The society is a non-profit organization that provides debt help at no cost.

Hannah said he’s watched demand for services grow substantially since the Bank of Canada started increasing the benchmark interest rate.

“Consumers are being hit with a perfect storm,” Hannah told Global News. “You’ve got interest rate hikes, which amounted to eight increases in a row and inflation, which last August hit an almost 40-year high, so we’re dealing with really unique situations, which many people have never experienced before.”

But it’s not just the number of people coming in for help in managing their debts that’s changed, so has the urgency of people needing assistance.

“In the past, people were more inclined to say let me schedule an appointment with you, either for a few days down the road or next week. People want help now,” Hannah said.

“So we’ve evolved to having a standby counselling model. When you’re calling, we’re going to have someone ready and available to help you address your situation. So we’ve seen a real heightened desire amongst consumers to address their situations, so the stress levels are up noticeably.”

On Wednesday, the Bank of Canada increased its benchmark interest rate to 4.5 per cent, an increase of 25 basis points.

“Not surprised. It was pretty expected,” said Peter McGrath, a Kelowna mortgage broker with Axiom Mortgage Solutions. “So that 25 basis points is kind of in line with what everyone was expecting.”

The latest hike is the first of 2023 but the eighth consecutive one in less than a year as the Central Bank works to curb inflation.

“What it means for the average borrower that has a variable or a line of credit, they’re going to expect to see their payment go up a little bit next month,” McGrath said.

McGrath told Global News that for the average homeowner with a variable mortgage, the latest increase  will amount to about $15 more per every $100,000 of borrowed money.

“So that isn’t really going to be a massive hit to the pocketbook, however, there’s a lot of backlog and planning that has already had a lot of stress to families.”

For those on fixed mortgages who are facing renewal, the hit as a result of the continued hikes may be substantial.

“You’ll be affected by your renewals coming up and it’ll go from where you had it five years ago to today’s rates,” McGrath said. “It could be a big jump.”

The prime rate at banks now sits at 6.7 per cent, an increase of 4.25 per cent since the bank started increasing the rate.

The growing cost of borrowing money is affecting people’s buying power.

“If you have an income of, let’s say $25,000, back in the day, you would have been able to qualify for around $145,000. Today, we’re looking at $105,000,” McGrath said. “So it’s about a 28-per cent reduction in your buying power.”

The nearly 40-year high inflation rate of 8.1 per cent in mid-2022 has cooled and clocked in at 6.3 per cent in December.

The Bank of Canada expects inflation to decline significantly in the months ahead with a predicted decrease to three per cent by the middle of 2023 and two per cent next year.

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