Manage guilt to build wealth – Moneysenense

But it is not all bad news behind the terrible head – and there is an opportunity to help young people, in particular, to understand the difference between good debts and bad debts.

So where is the good news?

The total consumer debt in Canada was $ 2.55 trillion at the end of the first quarter (Q1) of 2025, an increase of 4% on an annual basis. That is a huge number of and interesting that almost twice the record debt of just over $ 1.4 trillion from the federal government.

Nevertheless, the Consumers’ debt number is more than $ 6 billion decreases from the end of 2024. Although the average non-resorting debt rose to $ 21,859 per person in Q1 2025, there may be some valid reasons for it.

Age is a factor in acquiring debts

Guilt, statistically, is a recurring issue for younger people. It is logical that as people get older, the debt decreases – especially when it comes to mortgage debt. Nevertheless, it is surprising how long both student debt and consumer debt will last, far in pre-retirement, as shown in the details of mid-2024 below.

One of the most important culprits at the moment, especially for young people, is a strong market for car loans, according to the Equifax Canada Market Pulse Pulse Pulse Consumer Credit Trends and Insights Report. There can be valid reasons for this.

Car buyers seem to respond to the tariff tax problem and want to hold their purchases before they expected the price increases. To know if you can really afford a vehicle, you must do the credit mathematics in advance – and not only include the sticker price, but also the interest on the lifespan of your car loan. How can you reduce that?

By seeking help from a tax or financial adviser to understand whether your car loans will be tax deductible, the costs after taxes can also help reduce. Some operating costs, such as gas and oil or EV chargers, and part of the fixed costs such as interest or capital cost surcharges can be written off, with the correct documentation, when the vehicle is used for employment or independent purposes. Talk to a tax specialist about this. (Also read: how you can save on your taxes with car logs.)

Mortgage mathematics

New mortgage applications have risen 57.7% on an annual basis in Q1 2025. That is largely due to the number of mortgages that have arrived for renewal and refinancing, much at higher interest rates. It is also interesting to note that buyers from the first house have returned to the market, with an activity of 40% of a year ago.

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But although the average monthly payments can now fall due to the current lower interest rates, the average loan size increases with 7.5% on an annual basis. It is important to consider what the next renewal cycle could look like for today’s new debtors.

According to Bank of Canada Investigation60% of those with mortgage extensions in the next two years will be confronted with payment increases. The factors that push the interest rates higher include things such as high inflation, low saving percentages, falling trade, a decrease in labor productivity, high government debt and the risks of standard. Many of those factors nowadays play in the game.

Delinquences: they have no debts

However, when it comes to credit deliences, the financial tension is actually worse for consumers who have no mortgages. In this cohort, the delinquency rates increased by 8.9% on an annual basis, compared to 6.5% for mortgage holders. Again, younger Canadians – who were 18 to 25 – the hardest, with an increase of 15.1% in delinquency rates.

On the positive side, the average monthly credit card spending per card holder fell by $ 107 during Q1 2025, which has been the lowest level since March 2022.

Remember that not all debts are bad debts. When it comes to assessing good debts versus bad debts, there are a few simple but important rules:

• Loan for assets that appreciate. If you have to buy a depreciative active, make sure that it is income-producing-that it helps you to earn income from employment or self-employed, or from other investments such as a company or rental properties.
• Consider whether the interest is tax deductible. Consumer debt is, for example, bad debts it is expensive and not tax deductible. Pay it first, unless you owe money to the Canada Revenue Agency (CRA), in which case that amount due has priority.
• Borrowing to invest in registered accounts is not deductible. An important tax tip is that interest on loans to invest in a registered pension savings plan (RRSP), tax-free savings account (TFSA), First-home savings account (FHSA), etc. will not be deductible. Keep that in mind in your financial planning.

Debt tips for a better cash flow

Here are some effective ways To manage debts and to take control of your net cash flow:

1. Pay unpaid non-deductible debts with high interest as quickly as possible. This includes credit card debt and loans with a high interest rate, which cannot be written off on your tax return, nor used to build your assets.

2. Consider consolidating debts to first pay smaller amounts. Get rid of “debt trunk” but save two categories: tax-deductible debts and non-deductible debts.