Low income, cooler housing market drive high consumer debt

The average unsecured debt of those filing for insolvency in Kitchener, Waterloo and Wellington County is $48,437, slightly lower than the provincial average of $52,634, according to statistics published by insovency firm Hoyes, Michalos & Associates.

The total number of people in Kitchener, Waterloo and Wellington County who filed for insolvency in 2016 is 1,214.

Doug Hoyes, the co-owner of the firm, told CBC News the average unsecured debt of people who file for insolvency has decreased over the last few years.

"The reason for that is people are getting into trouble and having problems servicing their debt at lower levels," Hoyes said.

Unsecured debt includes credit card debt, unsecured bank loans, income tax debt and student loans.

Low wages an issue

Hoyes said income is one of the main reasons people file for insolvency.

"We deal with lots of people who are working two part-time jobs because they can't get one full time job," Hoyes said, "And as a result of that constrained income, it becomes harder and harder to service the debt."

• $15 minimum wage could cost 90K new jobs, but long-term outlook positive: TD
• 'Minimum wage is a poverty wage': Rally calls for hike to $15/hour in Manitoba

However, the province's plan to increase the minimum wage to $15 an hour by January 2019 may not be entirely beneficial for Hoye's clients.

Susan Daley, an associate portfolio manager at PWL Capital agrees.

"If you lose your job as a result of the business owner not being able to or willing to pay that higher minimum wage to the same number of employees, then that will cause an issue," she said.

Hoyes said a wage increase will only help some of his clients with their debt. "The minimum wage increase will help people who keep their jobs."

Changed housing market connected

The real estate market's ups and downs is connected to people filing for insolvency, according to Hoyes.

"In August, only six per cent of our clients actually owned a home at the time they filed a bankruptcy or a proposal," he said, adding that it's the lowest he has seen that percentage.

He believes until that time people were able to sell their homes or take out a second mortgage to repay their loans because the value went of their home up significantly over the last few years. But after selling, they might be debt-free but were no longer homeowners.

In September the proportion of his insolvency clients who owned homes went up. He said it's due to falling house prices, especially with the recent rise in interest rates.

Interest rates, home sales

Although it doesn't always happen, Daley said a higher interest rate would tend affect the cost of homes.

"In general, the population can't afford as much, so the demand isn't as it might have been previous to the interest rate hikes," she said.

Hoyes said he expects homeowners who have a lot of unsecured debt would have to file for insolvency rather than use their home to repay some of it.

However, he said it may take months before seeing the effects of interest rate hikes.

"So we're going to keep a real close eye on [the number of people filing for insolvency]," Hoyes said, "Real estate has a huge amount to do with debt and the economy in general."