Canada’s middle class appears to be struggling with the higher cost of living, with new data showing more are taking on debt as financial pain bleeds out into broader sections of the economy.
It comes as the so-called “K-shape” economy continues to underscore a widening wealth divide between Canada’s highest and lowest income groups, with Equifax reporting debt among Canadians with higher credit scores is rising.
“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’,” says Rebecca Oakes, vice-president of analytics at Equifax Canada.
“Everything that’s happening right now is just going to add pressure to an already difficult situation where we did have diversions in financial health.”
Total Canadian consumer debt in the fourth quarter, or final three months of 2025, increased 3.13 per cent from a year earlier to $2.65 trillion, and non-mortgage debt increased by 4.5 per cent.
Those with higher credit scores of between 751 and 880 out of the scale to 900 saw their non-mortgage debt rise by 6.1 per cent, while lower credit scores of 320 to 580 remained mostly the same, the report showed.
“It doesn’t really matter what your credit score is. What matters is how much income you have relative to your expenses. And so if your expenses are growing faster than your income, a 750 or 800 FICO score isn’t going to make you any wealthier,” says mortgage expert Clay Jarvis at NerdWallet Canada.
“So if anything, I would say having a higher credit score may have actually hurt some of these homeowners by allowing them to squeeze into these giant mortgages at a time when everything else is becoming more expensive.”
Missed payments on non-mortgage debt peaked at the end of December, Equifax says, with the number of Canadian households that missed a minimum debt payment by 90 days or more rising from 1.64 per cent to 1.73 per cent.
That’s a 5.43 per cent increase from the previous year.
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The data may soon show more severe changes, too.
That’s because this data out now shows a snapshot from the end of 2025, and a lot has happened since then, including the Iran war, which is expected to lead to higher prices for gas at the pumps, groceries, and just about everything else.
“With all these headwinds in what’s happening this year since January, that’s just going to put more pressure,” Oakes says.
The K-shape economy refers to a sharp divide between higher-income earners being able to spend more over time without going into debt, while lower-income earners are losing purchasing power and have to cut back more and more to make ends meet.
It’s effectively a visual cue to picture an economy where those on the upper end of the spectrum are able to continue increasing spending, while those on the lower end are declining.
A report from November 2025 showed this pattern unfolding based on survey data on expected holiday spending among consumers. Twenty-six per cent of shoppers said they planned on spending more than $1,000, while 46 per cent planned to spend less than $500, and 15 per cent said less than $100.
The Equifax data, Oakes says, shows a consistent result, where consumers did spend less than the year before.
“Our numbers are telling us is that there definitely is more concern, I think, coming from consumers in terms of affordability. We’re seeing that translate into spending behaviour,” she says.
“In the backend of last year, it was a holiday period. We saw quite a pullback in terms of spend by certain groups of consumers during that holiday period.”
Oakes adds that these higher debt levels, especially when including mortgage debt, were concentrated in British Columbia and Ontario, where cities like Vancouver and Toronto demand higher incomes to keep up with the relative cost of living, including for housing.
Mortgage debt increased to $1.95 trillion in the fourth quarter of 2025, Equifax said, which was up 2.6 per cent from the previous year.
A large wave of mortgage renewals was the main reason for this, Oakes says, and many Canadians locked in at higher interest rates than when they started in 2020, 2021 and early 2022, when rates were at multi-year lows.
“Stronger credit scores, maybe strong incomes, are able to kind of get hold of those higher balance mortgages. But the reality is that the payment shock they’re now seeing on renewal is just too much for them,” she says.
“Combine a cost of living increase with a payment shock if your mortgage is renewed at a higher rate or higher payment amount, and that, for some consumers, is just too much.”
On Wednesday, the Bank of Canada left its benchmark interest rate unchanged for the third straight meeting, but signalled the Iran war was raising the risk for Canada’s economy and the outlook is even more uncertain.
Some economists even suggested, based on what the Bank of Canada said after the announcement, that rates may even need to be increased in Canada if the war leads to long-term inflation spikes.
“It’s just it’s so hard to be positive about anything. Anybody I talk to about anything is feeling really really down and that’s just the overall sentiment when it comes to your finances,” says Jarvis.
“Anybody who is able to glide through this right now without having to worry about their finances every day … I don’t think they realize how lucky they are and what kind of a bubble they’re living in.”
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