A new year has dawned upon us and as the custom goes, we’re filled with the urge to create oh-so-promising new year’s resolutions. Popular new year’s resolutions include quitting smoking and getting in better shape, both physically and financially.
Guess which one I’m going to talk about?
Year after year, debt repayment is listed as the number one financial priority for Canadians heading into the new year. According to a new CIBC poll, 28 per cent of survey takers said paying down debt is their top financial goal in 2017.
While saving for a vacation (eight per cent), saving for retirement (six per cent), buying/saving for a home (six per cent) and buying/saving for a car (three per cent) seem to not be a priority for many, other common financial goals for the new year included keeping up with bills (16 per cent) and growing wealth and making investments (11 per cent). Ten per cent of those surveyed did not plan on making any financial goals for 2017.
Yet still, prioritizing debt repayment is at its highest level since 2010.
“With debt loads continuing to climb, it’s encouraging that repaying debt remains a top priority for Canadians,” said Scott Wambolt, Senior Vice President, Retail and Business Banking, CIBC. “However, with some Canadians saying they are taking on debt just to cover day-to-day expenses and too few actually seeking advice on how to build a repayment plan, it’s clear there is a gap when it comes to taking action on debt reduction.”
Paying Off Credit Card Debt
Out of those who are prioritizing to tackle debt in the new year, 76 per cent are most worried about paying off credit card balances and lines of credit. This is particularly concerning; while the interest rates on lines of credit may be low, the same can’t be said for credit cards. The typical credit card has an interest rate of 18 or 19 per cent – retail credit card rates are even higher at nearly 30 per cent. If you get into the habit of only paying the minimum on your credit card, it can easily take you years to pay off and cost you thousands of dollars in interest.
However, it seems like some Canadians are listening to the Bank of Canada’s warning about not taking on anymore consumer debt. If there’s a silver lining to the poll’s findings, it’s that 70 per cent of Canadians said they didn’t pile on any new debt last year.
For those who did pile on new debt (28 per cent), it appears like they’re doing the lion’s share of borrowing. The household debt-to-income ratio once again reached a record high in the third quarter of 2016, with Canadians owing an average of $1.67 for every dollar of disposable income.
Living Within Your Means
One of the most important rules for personal financial success is to live within your means. That means spending less than you earn and saving a portion of each pay cheque. However, for those who took on new debt, 32 per cent said their debt accumulated due to daily expenses beyond their monthly income. This is not a fun situation to be in. With precarious employment the new norm, you could quickly find yourself in serious financial trouble if you or your partner were to become unemployed.
Money Coaches and Fee-Only Financial Planners
So are Canadians willing to buckle down and do what it takes to pay off debt? It seems many aren’t. Only 52 per cent are ready to cut back their spending on non-essential items to meet their financial goals. A household budget would make life a lot easier, yet only 26 per cent have one.
This is where a money coach or fee-only financial planner might come in handy. They can help steer you in the right direction. If you’d like to re-pay debt, but can’t seem to figure out where your money is going each month, they can help you prioritize your short-time and long-term financial goals and ultimately improve your chances of financial success.