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Recent data reveals that Canada’s middle class is increasingly burdened by rising living costs, leading to a concerning uptick in consumer debt. This trend underscores the growing economic disparities within the nation, as the so-called “K-shape” recovery continues to deepen the divide between affluent and less affluent households. Equifax’s latest report indicates a significant rise in debt among Canadians with higher credit scores, suggesting that financial strains are becoming more pervasive across various income levels.
Deepening Economic Disparity
The economic landscape in Canada is becoming increasingly polarised, with a clear distinction between those who are able to navigate financial challenges and those who are not. Rebecca Oakes, Equifax Canada’s vice-president of analytics, commented on this phenomenon, stating, “There’s more of a divergence happening, and a few of the higher-income or low-risk people are kind of switching almost on that ‘K’.” This shift signifies that while some individuals are managing to accumulate wealth, many others are grappling with escalating financial difficulties.
In the fourth quarter of 2025, total consumer debt in Canada surged by 3.13 per cent year-on-year, reaching an alarming $2.65 trillion. The non-mortgage debt alone saw a rise of 4.5 per cent. Notably, individuals with credit scores ranging from 751 to 880 experienced a 6.1 per cent increase in non-mortgage debt, whereas those with lower credit scores between 320 and 580 saw their debt levels remain relatively stable.
The Burden of Rising Costs
As financial pressures mount, the relationship between income and expenses is becoming increasingly strained. Clay Jarvis, a mortgage expert at NerdWallet Canada, emphasised that what truly matters is the balance between income and expenditure. “If your expenses are growing faster than your income, a 750 or 800 FICO score isn’t going to make you any wealthier,” he explained. This situation is exacerbated for homeowners, as many have leveraged their good credit to secure larger mortgages at a time when overall costs are skyrocketing.
Missed payments on non-mortgage debt also hit a concerning peak at the end of December 2025, with the percentage of households failing to meet minimum debt obligations for 90 days or more rising from 1.64 per cent to 1.73 per cent—a 5.43 per cent increase compared to the previous year. This trend indicates that a growing number of Canadians are struggling to keep up with their financial commitments.
Impact of Global Events
The snapshot provided by Equifax reflects a moment in time before significant global events, such as the ongoing war in Iran, began to exert additional pressures on the Canadian economy. Oakes further noted that these geopolitical challenges are likely to exacerbate the financial strain, particularly with anticipated increases in gas prices, food costs, and other essentials. “With all these headwinds, that’s just going to put more pressure,” she remarked, highlighting the uncertain economic outlook.
The “K-shape” economy model illustrates the widening gap between high-income earners who can afford to spend without incurring debt, and lower-income households who are increasingly forced to tighten their belts. A report from November 2025 indicated that only 26 per cent of consumers planned to spend over $1,000 during the holiday season, while a striking 46 per cent intended to spend less than $500—demonstrating a marked decline in consumer confidence.
Mortgage Debt and Affordability Challenges
Mortgage debt, which reached $1.95 trillion in the fourth quarter, saw a 2.6 per cent increase from the previous year. The pressure of renewing mortgages at higher interest rates has left many Canadian homeowners feeling the pinch. Oakes explained that while those with stronger credit scores might have gained access to larger mortgages, they are now facing a “payment shock” as rates have escalated since the lows of 2020 and 2021.
As the Bank of Canada maintains its benchmark interest rate for the third consecutive meeting, concerns loom about the potential need for future increases if inflation spikes due to ongoing global tensions. Economists warn that the current climate makes it difficult to maintain a positive outlook, with many Canadians feeling the weight of their financial burdens. Jarvis articulated this sentiment succinctly: “It’s just so hard to be positive about anything… anybody who is able to glide through this right now without having to worry about their finances every day…I don’t think they realise how lucky they are.”
Why it Matters
The rising consumer debt levels and the widening economic divide signal a troubling trend for Canada’s middle class. As financial pressures mount, the ability to maintain a stable standard of living diminishes for many, threatening the fabric of economic stability in the nation. Understanding these dynamics is critical for policymakers and economists alike, as they navigate the complex landscape of inflation, interest rates, and global economic factors that continue to shape the lives of Canadians.
