The financial landscape for Canada’s middle class is increasingly precarious, as new statistics reveal a troubling trend of rising debt levels driven by the escalating cost of living. A recent report from Equifax highlights a growing divide in the economy, illustrating that while higher-income earners may be managing to maintain their spending, lower-income households are feeling the pinch more acutely.
Rising Consumer Debt Signals Economic Strain
Data for the final quarter of 2025 indicates that total consumer debt in Canada climbed 3.13 per cent year-on-year, reaching a staggering $2.65 trillion. Particularly alarming is the 4.5 per cent increase in non-mortgage debt during the same period. Those with credit scores between 751 and 880 experienced a notable 6.1 per cent rise in their non-mortgage obligations, in stark contrast to those with lower credit scores, who saw their debt levels largely stagnate.
Rebecca Oakes, vice-president of analytics at Equifax Canada, emphasises the widening gap: “There’s more of a divergence happening among income groups. Some higher-income individuals are shifting on that ‘K’, indicating a divergence in financial health.” Oakes warns that the current economic pressures are compounding an already challenging situation for many Canadians.
Missed Payments on the Increase
Reflecting the growing financial strain, the rate of missed payments on non-mortgage debt surged to 1.73 per cent by the end of December, up from 1.64 per cent a year prior. This uptick represents a 5.43 per cent increase in missed payments, highlighting the difficulties faced by households across the country.
Notably, this data only offers a snapshot of the situation as of late 2025. The ongoing Iran war and its subsequent impact on global oil prices are expected to exacerbate these conditions, further straining consumer finances. “With all these headwinds since January, the pressure on consumers is likely to intensify,” Oakes remarked.
Understanding the ‘K-Shape’ Economy
The concept of a ‘K-shape’ economy illustrates the stark contrast between the financial trajectories of high-income and low-income households. While wealthier individuals are able to increase their spending without accruing significant debt, those on the lower end of the income spectrum are struggling to keep pace with rising costs.
A survey conducted in November 2025 revealed this divide clearly: 26 per cent of consumers indicated plans to spend over $1,000 during the holiday season, whereas 46 per cent intended to restrict their spending to less than $500, with 15 per cent planning to spend under $100. Oakes noted that the Equifax data corroborates these findings, indicating a shift in consumer behaviour marked by heightened concern over affordability.
Impact of Mortgage Debt on Financial Health
Mortgage debt in Canada reached $1.95 trillion in the last quarter of 2025, reflecting a 2.6 per cent rise from the previous year. A significant factor in this increase is the wave of mortgage renewals, with many Canadians now facing higher interest rates than those available in the earlier part of the pandemic.
Oakes pointed out that while stronger credit scores may enable some individuals to secure larger mortgages, the reality of higher payments upon renewal can be overwhelming. “The combination of rising living costs and the shock of increased mortgage payments can be insurmountable for many,” she explained.
Recently, the Bank of Canada maintained its benchmark interest rate for the third consecutive meeting but warned that the Iran conflict poses risks to the economic outlook. Some economists speculate that if inflation continues to surge, interest rates may eventually need to rise, further complicating financial conditions for many Canadians.
As mortgage expert Clay Jarvis observed, “It’s hard to remain optimistic. People are feeling the weight of their financial burdens daily.” The sentiment among consumers resonates with this reality, as many grapple with the increasing pressures on their wallets.
Why it Matters
The findings surrounding rising debt levels and the K-shape economy reveal a critical juncture for the Canadian middle class, highlighting the urgent need for targeted economic policies and support measures. With many households already struggling to make ends meet, the potential for rising interest rates and ongoing inflation could deepen the financial divide, threatening the stability of a significant segment of the population. Addressing these challenges will be essential to fostering a more equitable economic environment where all Canadians can thrive.