More Ontarians are going into debt to cover the cost of day-to-day necessities and emergency expenses.
A study by Hoyes, Michalos & Associates, a licensed insolvency trustee with offices across southern Ontario, found most of those turning to insolvency aren't using the bulk of their income for luxuries. Instead, more than the recommended portion of income is going to housing and regular living expenses, leaving people with only credit cards to cover daily and emergency expenses.
"The typical insolvent person in Ontario has just $302 left each month after paying their living expenses to repay debt that carries an estimated monthly interest of $960. The math just doesn't work," said Ted Michalos, co-founder of Hoyes Michalos.
Michalos doesn't believe these people are financially irresponsible as most aren't using credit to live beyond their means but rather to make ends meet.
"Joe Debtor is using debt to make up for a lower than average, intermittent or stagnating income," said Michalos, who notes the per capita insolvency rate in the province has dropped to a 15-year low.
Seniors, single parents, and millennials are among the most likely to file for insolvency. The number of millennials aged 18-29 account for 14% of all of Ontario's insolvencies, up from 12% in 2015. Single parents are twice as likely to become insolvent as two-parent households. Seniors are the fastest-growing risk group and currently make up 12% of all insolvent debtors.
"Indebted seniors drain their retirement savings to repay debt, often resulting in unpaid tax debts. It is also alarming that more than one in ten insolvent seniors turn to payday loans," said Doug Hoyes, co-founder of Hoyes Michalos.
Hoyes recommends anyone struggling with personal debt create a repayment plan, avoid payday loans, and build a small emergency savings fund.
