Nearly a third of Canadians have taken on more debt in the past 12 months. The most popular reason for doing so? To make ends meet.
Thirty four percent of Canadians who reported adding to their debt load in 2018 did so by using credit for day-to-day purchases, according to a poll published in December by the Canadian Imperial Bank of Commerce (CIBC). Those surveyed also took on new debt to buy a new vehicle (24%) or pay for a home repair or renovation (20%).
Predictably, nearly half (45%) of Canadians with bigger debt loads said that outstanding credit card balances were their top sources of debt, followed by mortgages (31%), car loans (23%), lines of credit (22%) and personal loans (11%).
These numbers are not surprising. In mid-December, Statistics Canada reported that Canadians had, on average, $1.78 in credit market debt for every dollar of disposable income. That same week, credit rating agency TransUnion found that non-mortgage consumer debt — outstanding loans like credit card, auto or student loans, which aren’t secured by real estate — averaged a staggering $29,967 per Canadian in the third quarter of 2018. That represents a 3.85% jump from the previous year.
Evidently, Canadians are eager to bring these numbers down. The most popular financial priority for 2019 among those surveyed by CIBC was paying down debt (26%), followed by keeping up with bills (14%) and growing wealth (12%).
2018 was the ninth consecutive year in a row where CIBC respondents voted paying down debt as their top financial goal.
“Debt weighs heavily on Canadians, so it's no surprise that Canadians continue to put debt concerns at the top of their list of priorities each year,” said Jamie Golombek, managing director, CIBC Financial Planning and Advice. “Debt can be a useful tool for achieving long term goals such as home ownership or funding education, but if you're turning to debt to make ends meet, it may be time for cash-flow planning instead.”
The vast majority of those surveyed by CIBC (84%) said that they would prioritize paying down debt over savings — a strategy that may not necessarily be the most efficient for building financial security, Golombek adds. It all comes down to your specific circumstances.
“There's rarely enough money to do everything, so it's critical to make the most of the money you earn by prioritizing both sides of your balance sheet — not debt or savings, but both,” he explained.
“The idea of being debt-free may help you sleep better at night now, but it may cost you more in the long run when you consider the missed savings and tax sheltered growth.”