The Bank of Montreal (TSX-BMO) surveyed 1,005 Canadians on their debt levels and repayment between July 12 and 16. The poll showed more Canadians are in debt and are taking longer to pay off their debts. It found that 83 per cent of Canadians surveyed stated they were in debt which is an increase from 74 per cent in 2012.
The poll also revealed that the average amount of monthly debt repayment has decreased from an average of $1,138 to $986. Consumers in Alberta held the higher amount of debt payments per month at $1,225 while those in Quebec faced an average amount of $768 each month.
So why are more Canadians in debt and in no hurry to pay off their debts?
It’s hard to believe that with the constant warnings issued from the Bank of Canada, Canadians are still taking on debt. One of the big reasons consumers find themselves in debt is because of the current low interest rates. BMO Vice President, Janet Peddigrew stated, “We’ve had prolonged interest rates for a few years now, allowing people to take on more debt while still ensuring that it’s affordable so they’re able to manage the debt that they have ”. She suggested the poll results could indicate two things: either people are having more trouble making high monthly payments, or they’re in no hurry to pay down their debt due to current low interest rates.
How many times are we warned by all the major banks that low interest rates will not last forever? The debts we rack up now could sink us once the rates increase. We need to be prudent, as Ms. Peddigrew has suggested, and look at reducing our debt levels now while the interest rates are still low.
“Time is of the essence. If you can afford to pay more on a monthly basis, do it and get it reduced,” offered Ms. Peddigrew.
The longer we prolong any loan the more interest we pay. Paying only the minimum payment on your bill, as suggested by the creditor, you will find yourself taking years to pay off the loan. We have warned consumers for years that once you’re stuck paying the minimum, you are stuck in debt. It is a better idea to tighten your purse strings and get a loan paid off as soon as possible. This will eliminate the amount of interest you would be charged otherwise.
The annual poll also found that nearly half of those surveyed said their household debt has decreased in the past five years, compared with 28 per cent who said it has increased during that period. More than half said they plan on being debt-free within five years.
You would think that by now Canadians would have “got it” about taking on too much debt and paying only the minimum when it comes to repayment. True, statistics have shown over the last year that we are starting to understand that using low interest rates as an excuse to spend beyond our means, but we’re not changing our spending habits quickly enough.
We at OCCA Consumer Debt Relief consult too many consumers who saw the writing on the wall with their finances but were surprised when they found their debts were too much to manage. On behalf of our counselors, we implore Canadians to curb back spending, prioritize a budget and stick to that budget. That being said we understand all too well that sometimes life can through curve balls beyond your control that put you into financial peril. If this should happen, consumers need to find reasonable options for debt relief promptly. Take control of your finances and spend wisely!.
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