Three Quarters by Jim Kuhn
Leading North American financial institution CIBC published a new Debt Poll on Monday. Conducted by Harris/Decima, the poll revealed that 72 per cent of Canadians are in debt. However, almost 49 per cent made at least one extra payment to bring down balances, primarily directed to reducing credit card and line of credit balances.
Who borrows the most
People aged 25 to 34 years are those who most likely hold some form of debt (84 per cent) together with those between 35 and 44 years (83 per cent). Considering regions, residents of Atlantic Canada show the highest likelihood of holding debt, while Ontario residents the lowest. The data, gathered in March and April 2012, warn of rising household debt and predict an increase in interest rates.
The report also presents the differentiation in the overall number of debt products. While over a quarter of the whole population (26 per cent) is debt free, 18 per cent of Canadians live with one debt product, while 17 per cent have two, 25 per cent have either three or four, and 12 per cent of Canadians have five or more debt products. The last group was more likely to make a lump sum debt payment compared to the national average in the previous 12 months, probably as a result of greater awareness of the need to reduce their debt levels.
Half of Albertans bringing down their balances
The new poll on debt levels found that in Alberta, 75 per cent of residents hold some form of debt with 52 per cent having made one or more lump-sum payment to bring down balances in the last 12 months. Report shows that from all Albertans making extra payments, 64 per cent used them to reduce credit card balances and 42 per cent line of credit balances, while mortgages accounted for 22 per cent. The number of Alberta residents who are managing just one debt product was 13 per cent, followed by 19 per cent with two debt products, 31 per cent with three or four, and 12 per cent with five or more debt products.
Debt behaviour of Canadians: careful and individualist
Calgary tower by Richard Smith
Christina Kramer, Executive Vice President of Retail Distribution and Channel Strategy at CIBC, sees the poll results as proof of debt management being one of the primary concerns among Canadians. Interestingly, increased awareness of Canadians about the benefits of debt management is accompanied by a lower likelihood to be advised about it. According to Ms. Kramer, Canadians could benefit from expert advice on their debt behaviour. “Debt reduction takes effort and discipline about how your money is spent, but it also requires a thoughtful approach as to how to direct extra payments and reduce interest costs, which is where a conversation with an Advisor can be very helpful as part of an overall financial plan,” she explained.
Drama unless you keep an eye on control
The figures from the poll indicate that debt is relatively high. However, the situation has not dramatically changed compared to previous debt polls. Not losing control over debt remains the most important concern. Basic tips for debt management include taking charge of your own finances and having a long-term financial plan. If you’re making lump-sum payments, choose debts with higher interest rates first to decrease overall interest costs as much as possible. Collaboration with an advisor can be helpful for debt optimization and strategy. Although interest rates stay at historic lows, keep an eye out for opportunities for making beneficial adjustments to your payments. Setting debt payment even a bit higher can help you to become debt-free faster and make your interest costs lower.
