Rising costs squeeze households, reshape credit demand and signal planning challenges ahead
Canadian households are under growing financial strain as inflation continues to outpace income growth, according to TransUnion’s Q4 2025 Canada Consumer Pulse Study.
More than half of Canadians report their household income is not keeping pace with inflation and almost one third are pessimistic about their financial outlook over the next 12 months, marking a decline from the previous quarter. At the same time, 25% say they cannot pay at least one current bill or loan in full. These pressures persist despite 20% reporting income growth in the past three months, while 64% saw no change and 16% experienced declines.
Debt repayment challenges are most pronounced in unsecured credit. Among those unable to meet full payment obligations, 63% cite credit cards or personal loans as the hardest to pay, followed by student loans (55%) and mortgages (45%). The data reflects difficult trade-offs for households trying to manage rising costs with limited financial flexibility.
“Affordability continues to be a concern for many Canadians as economic uncertainty impacts financial decision making,” said Matt Fabian, director of financial services research and consulting at TransUnion Canada. “While many are taking proactive steps to be financially resilient, there are significant sections of the population who continue to struggle with staying on top of debt payments while navigating rising costs.”
Economic pessimism is reinforcing conservative financial behavior with 27% of respondents saying that the country is already in a recession, while another 32% expect one within the next year. Among those anticipating or experiencing a downturn, 84% report taking steps to prepare. The most common actions include reducing spending (61%), building savings (38%) and paying down debt (28%). Smaller segments report checking credit reports, changing jobs, requesting higher credit limits or taking on new credit.
Households are also adjusting spending habits to stay within budget. Two thirds (67%) say they looked for sales and discounts more frequently in recent months. Others shifted toward lower-cost retailers (44%), generic brands (41%) and increased coupon use (31%). Only 15% reported no change in shopping habits. More than half (51%) have cut discretionary spending such as travel, dining and entertainment, while 19% expect to reduce retirement or investment contributions in the near term. Over half (53%) are concerned about not saving enough for retirement in the next three to five years, signaling a growing tension between short-term affordability and long-term planning.
Credit remains central to financial strategies with 82% saying that access to credit is important to achieving financial goals, yet only 56% believe they have sufficient access. One in five (21%) plan to apply for new credit or refinance existing products in the next year, led by Gen Z (47%) and Millennials (31%).
TransUnion data shows Millennials now hold 38% of Canada’s total outstanding debt, approximately $988 billion. Among those planning to seek credit, 47% intend to apply for new credit cards and 23% plan to request higher limits.
“We’re seeing a continued trend of Canadians turning to credit cards to aid in their cashflow,” Fabian said. “As inflation places additional strain on Canadians’ wallets, many consumers may be looking for increased liquidity to help balance their budgets and may see credit as a useful tool to help them do so.”
At the same time, 18% of Canadians believe they would not be approved for new credit if needed, and over 20% of those who considered applying ultimately chose not to due to fear of rejection tied to credit history or income.
Finally, fraud risk continues to rise. Nearly half (46%) of Canadians report being targeted by fraud attempts in the past three months, with 7% falling victim. Younger consumers are most exposed, and 36% of all respondents took no cybersecurity precautions in the past 60 days, often due to not knowing what steps to take.
