**
Recent data suggests that the middle class in Canada is increasingly burdened by rising living costs, leading to a notable uptick in personal debt. This trend highlights the ongoing “K-shaped” economic recovery, which illustrates a growing divide between the affluent and those struggling to make ends meet. Equifax’s latest report reveals that even individuals with higher credit ratings are not immune to this financial distress.
Rising Debt Levels
According to Equifax, total consumer debt in Canada reached an alarming $2.65 trillion by the end of 2025, marking a 3.13 per cent increase compared to the previous year. Notably, non-mortgage debt surged by 4.5 per cent, indicating that households are increasingly relying on credit to manage their everyday expenses.
Among those with higher credit scores, specifically those rated between 751 and 880, non-mortgage debt rose by 6.1 per cent. Conversely, individuals with lower credit scores, ranging from 320 to 580, experienced relatively stagnant debt levels. This disparity highlights a troubling trend where financial security is not solely dictated by creditworthiness but by an individual’s income relative to their expenses.
Clay Jarvis, a mortgage expert at NerdWallet Canada, emphasises the significance of income stability over credit scores. “What truly matters is the balance between income and expenses. If expenses outpace income, even a high credit score won’t provide financial relief,” he notes. He warns that higher credit scores may trap some homeowners into larger mortgages, exacerbating their financial strain as living costs rise.
Default Rates on the Rise
The financial strain is reflected in rising missed payments. By the end of December, the percentage of Canadian households failing to meet minimum debt payments for 90 days or more increased from 1.64 per cent to 1.73 per cent—a 5.43 per cent rise from the previous year. This increase signals a worrying trend that may worsen, especially as current events, such as the ongoing conflict in Iran, threaten to escalate costs further.
Rebecca Oakes, vice-president of analytics at Equifax Canada, points out the potential for even greater financial difficulties in the coming months. “The economic challenges we face this year are likely to intensify the existing pressures on consumers,” she warns.
Understanding the ‘K-Shaped’ Economy
The “K-shaped” economy describes a scenario where higher-income individuals continue to thrive while lower-income groups experience a decline in purchasing power. This divergence in financial health is stark, as the affluent can afford to maintain or increase their spending, while those at the lower end of the income spectrum are forced to tighten their budgets.
A report from November 2025 highlighted these economic disparities, revealing that while 26 per cent of shoppers planned to spend over £1,000 during the holiday season, 46 per cent intended to spend less than £500. This pattern of reduced spending was corroborated by Equifax’s findings, which indicated a growing concern among consumers regarding affordability.
Oakes notes that this apprehension is translating into consumer behaviour, with significant pullbacks in spending observed during the previous holiday season. “Our data suggests that affordability concerns are influencing how consumers approach their expenditures,” she explains.
Regional Disparities in Debt Accumulation
The burden of rising debt levels is particularly pronounced in British Columbia and Ontario, where cities like Vancouver and Toronto have some of the highest living costs in the country. Equifax reported that mortgage debt climbed to £1.95 trillion in the last quarter of 2025, reflecting a 2.6 per cent increase from the previous year.
A surge in mortgage renewals, often at higher interest rates than those seen in previous years, has left many Canadians grappling with payment shocks. Oakes elaborates, “For many, the combination of rising living costs and increased mortgage payments has created an unsustainable situation.”
In light of these economic pressures, the Bank of Canada recently decided to maintain its benchmark interest rate for the third consecutive meeting. However, analysts are wary, suggesting that ongoing geopolitical tensions could lead to inflationary spikes that necessitate future rate hikes.
Why it Matters
The financial landscape for Canada’s middle class is increasingly precarious, as rising living costs and accumulating debt create a perfect storm of economic uncertainty. The widening wealth gap encapsulated by the “K-shaped” recovery underscores the urgent need for policies that address these disparities. Without intervention, the financial struggles of the middle class could intensify, threatening the stability of the economy as a whole. As consumers continue to feel the pinch, understanding these dynamics will be crucial for navigating the road ahead.
