Canadians continue to miss easy-to-implement opportunities to reduce their personal debt faster
WATERLOO - Manulife Bank of Canada's most recent consumer debt survey found that, despite a record number of Canadian homeowners putting a high priority on becoming debt-free (77%), many Canadians continue to miss a variety of easy-to-implement opportunities to pay down their debts faster. These missed opportunities have led, in part, to more than six in 10 (61%) Canadians struggling to reduce their debt over the past year -- either increasing their debt (25%), seeing no change in their debt (15%), or reducing their debt, but by less than they expected (21%).
When Canadians were asked what their primary obstacles are to becoming debt-free, the top three barriers identified were a lack of extra money to put towards debt repayment (54%), the overall amount of their debts (43%) and the interest rates they pay on their debts (39%) - despite interest rates remaining at near historic low levels. Another quarter of Canadians (27%) identified the number of different debts they have as a barrier to debt freedom.
"Many Canadians have told us they are unable to pay down their debts as quickly as they would like because they don't have the money, their interest rates are too high, or they have too many debts to deal with effectively," noted Doug Conick, President and CEO of Manulife Bank. "Canadians should be aware there are a variety of actions they can take to reduce their personal debt more quickly that don't take a lot of time or effort. Create a financial plan that include targets for debt repayment; consolidate debt at one low rate and, above all else, seek advice from a professional financial advisor."
The Manulife Bank survey results found that even in the face of these obstacles to debt freedom, many Canadians are not taking advantage of a variety of strategies that would help them overcome these barriers and reduce their debt faster. For example:
4 in 10 Canadians (43%) do not plan to consolidate their debts at a single low interest rate. Consolidating debt is an easy way for people to get out of debt faster by ensuring more of their monthly payments are going towards the principal debt instead of interest costs.
Among respondents with a mortgage, 70% did not make any extra payments on their mortgage in the past year. According the Financial Consumer Agency of Canada's online calculator, if a person with a $200,000 mortgage (25 year amortization, 4% interest rate, monthly payments) increased their payment by $100 per month, they'd save more than $17,000 in interest and pay off their mortgage almost three and a half years sooner.
Two-thirds of homeowners (65%) did not compare mortgage products from more than one lender the last time their mortgage came due - an easy-to-implement strategy that can result in greater flexibility.
More than half of Canadians (55%) do not plan to work with a professional financial advisor to get advice on how they can more effectively manage their debt; and fewer than six in 10 Canadians (56%) have, or intend to create, a debt repayment plan that includes a specific date for when they expect to be debt-free.
"Creating a plan to pay down your debts and getting expert advice from a financial advisor are the right places to start for Canadians looking to turn their good intentions with regards to debt reduction into reality," concluded Conick. "A solid debt repayment plan and a good financial advisor can go a long way toward helping Canadians better understand the opportunities they have to pay down their debts faster - and this may involve nothing more than organizing your finances more efficiently."
The Manulife Bank of Canada poll surveyed 1,000 Canadian homeowners between ages 30 to 59 with household income of more than $50,000 . It was conducted online by Research House between October 25 and November 7, 2011 . In a similarly-sized random sample survey, the margin of error would be plus or minus 3.10% at a 95% confidence level. Full results of Manulife Bank's most recent consumer debt survey can be found at manulifebank.ca/debtresearch.