Do You Need to Pay Down Debt in 2018?
Channeling your inner Santa Claus, spluring on vacations, dining out four nights a week.
Two-thirds of Canadians admit they need to get a better handle on their finances in the new year, a new CIBC poll finds.
Paying down debt remains the top financial priority for 25 per cent of Canadians in 2018 — the eighth consecutive year it has topped the list in the annual survey.
The poll results also show that investing and building wealth is increasing in importance, compared to more immediate financial concerns.
“While debt repayment is still the number one priority, Canadians recognize that it’s just as important to focus on building savings and growing your nest egg,” said CIBC’s managing director of financial planning and advice Jennifer Hubbard.
“With inflation outpacing average earnings and the risk of outliving our assets, it’s essential to set out your short- and long-term financial goals in a comprehensive financial plan that strikes the right balance between paying down debt and growing savings.”
Interest rates are expected to rise in 2018 and household debt in Canada is still climbing.
Key poll findings:
- 25 per cent of Canadians say paying down debt is their top financial priority for 2018.
- One in five Canadians say growing wealth (13 per cent), or saving for retirement (7 per cent) are their top focus for the year ahead.
- Men are nearly twice as likely than women to prioritize growing wealth (17 per cent versus 9 per cent, respectively) and retirement savings (9 per cent versus 5 per cent, respectively).
- Two-thirds (67 per cent) admit they need to get a better handle on their finances in the new year.
- Only 16 per cent actually achieved their top financial goal in 2017 and moved on to another one.
- Just over a quarter (26 per cent) say they took on new debt this past year, with the need to manage day-to-day expenses (32 per cent) or deal with an unexpected financial emergency (22 per cent) as the top reasons cited for the debt accumulation.
- Half of Canadians (51 per cent) regret not paying down more debt while interest rates were so low.
“We all know how hard it is to keep New Year’s resolutions. That’s why when it comes to your finances you want to set smart goals that are specific, measurable, achievable, time-bound, and most importantly, realistic,” said Hubbard.
“Saving and managing your debt are both essential to your overall financial health.”
To meet financial goals for 2017, nearly half of Canadians (46 per cent) said they reduced their spending on non-essential items, and almost a third (31 per cent) set a household budget. But only 16 per cent achieved their financial priority.
Heading into 2018, more than half (55 per cent) plan to trim their non-essential spending, and more than a third (36 per cent) will create a budget.
Twice as many Canadians in this year’s survey say they’ll create an emergency fund, and prioritize savings by setting up automatic transfers into a savings or investment account — that’s 27 per cent and 23 per cent respectively, compared to 13 per cent and 12 per cent last year.
“Regular contributions to an emergency fund is not only a smart way to curb dependency on debt, but also to build up savings that can then be applied to other financial goals in a year or two, or even further down the road,” said Hubbard.
A recent CIBC poll revealed that Canadians admit they need to save more money and could save an average of $360 more each month, but most (64 per cent) lack the discipline to save.
“While it’s critical to pay down high-interest debt first, what’s going to be important in the year ahead is how quickly Canadians can prioritize savings and set up regular and automatic transfers towards their goals - whether that’s to accelerate debt repayment or save for retirement,” said Hubbard.
As outlined in an earlier CIBC report, for many, the decision comes down to whether the emotional appeal of being debt-free is putting their retirement at risk.
“The fact is, with interest rates still as low as they are, having a solid investment plan in place can help you choose to invest in a way that makes the most of your money and builds your overall net worth,” said Hubbard.
Here are five ways to meet your financial priorities:
Write down your income and expenses. Having a clear picture of your financial situation can reveal some surprises and get you in the right frame of mind.
Get a handle on high-interest debt. Pay off any high-interest debt and/or consolidate your debts into one loan at a lower interest rate. Once debt is paid, roll over that monthly payment into savings instead.
Think twice about spending. Understand your needs and wants. Start with your essential expenses: housing, food, transportation, clothing, education, and health care. Then, turn your attention to ways of meeting (or paring back) your discretionary expenses, such as entertainment, travel or dining out.
Start saving now - and automate it. Commit to saving even a small amount and “pay yourself first” by setting up an automated transfer on the day your paycheque is deposited. For an added boost, direct those funds into a TFSA, RESP or RRSP to take advantage of any government grants and tax savings.
Get an expert opinion. Speak to a CIBC advisor to build a budget, and financial plan that maps out your short- and long-term goals like paying off debt, or saving for a dream vacation, or retirement. This can help you put realistic steps in place so you can make real progress against your goals.