Lump sum payments primarily directed to credit cards and lines of credit; having a plan is key to successful debt reduction
TORONTO, May 28, 2012 /CNW/ - Almost half of Canadians holding debt made at least one extra payment to bring down their balances in the last 12 months, finds a new CIBC (TSX: CM) (NYSE: CM) Poll conducted by Harris/Decima. Amidst warnings on rising household debt levels and the prospect of higher interest rates, Canadians primarily focused these extra payments on reducing credit card and line of credit balances.
Key Poll Findings:
-- 72 per centof Canadians hold some form of debt, unchanged from the findings of a similar CIBC poll from June 2011 -- Among Canadians with debt, 49 per cent have made at least one lump sum payment to their debt sometime in the last year -- Canadians making extra payments are directing these payments to reducing credit card balances (62 per cent), followed by line of credit balances (46 per cent), and mortgages at 22 per cent. -- Canadians more heavily indebted are also among the most likely to have made an extra lump sum payment toward their debt in the past 12 months -- The age groups most likely to hold debt were 25-34 year olds (84 per cent) and 35-44 year olds (83 per cent) -- After age 45, the likelihood of holding debt begins to decline -- Regionally, residents of Atlantic Canada were among the most likely to hold debt (78 per cent), while Ontario residents were among the least likely to have debt (69 per cent)
"Debt management is top of mind for Canadians, and these poll results show that many Canadians are taking steps towards reducing their debt," said Christina Kramer, Executive Vice President, Retail Distribution and Channel Strategy, CIBC.
Ms. Kramer also noted that despite the increased awareness Canadians have about the importance of managing debt, it's a topic they are less likely to get advice about - a gap that suggests more Canadians would benefit from a strategy to tackle debt reduction.
"We know from past research that Canadians are more likely to seek financial advice about saving for retirement than they are about managing their debt," added Ms. Kramer. "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."
Some Canadians Making up to Five Debt Payments a Month
Among the 72 per cent of Canadians holding some form of debt, some are managing only one debt product, while others are making up to 5 monthly payments to various debt products which could impact their ability to manage their overall finances.
-- 26 per cent of Canadians polled reported being debt free, with no balances on any debt products -- 18 per cent held just one debt product with a balance -- 17 per cent have two debt products with a balance -- 25 per cent have either 3 or 4 debt products with a balance -- And, 12 per cent of Canadians have 5 or more debt products with a balance
Interestingly, clients with 5 or more debt products were more likely to have made a lump sum debt payment in the last 12 months (62 per cent) versus the national average (49 per cent). This trend could be a result of a realization among more heavily indebted Canadians of the need to take action to reduce their debt levels more urgently than those Canadians managing just one monthly payment.
Advice on Managing Debt:
For Canadians focused on paying down debt, Ms. Kramer offered debt management tips to take charge of their finances and reduce debt as part of their long term financial plan.
-- Make lump sum payments to higher interest debt first to reduce interest costs -- If you have debt, work with an advisor to structure it to minimize your overall interest costs by utilizing debt products that offer a lower interest rate and having a strategy to pay these balances down in a specific time frame -- While interest rates remain near historic lows, don't ignore the long term benefits of making small adjustments to your payment today. Setting your debt payment even slightly higher than your required payment can reduce your overall interest costs and help you become debt free faster -- Use free budgeting tools to help you stay on budget - CIBC CreditSmart available to CIBC credit card holders allows you to set customized budgets and receive spend alerts if you exceed your planned budget for the month, helping you stay on top of your everyday budgeting and saving
"For Canadians holding debt but working to pay it down, there is a clear benefit to sitting down with an advisor and working through the steps you can take today that can have a significant benefit to reducing your debt and building your savings over time," added Ms. Kramer.
To learn more tips and try various debt repayment tools and calculators, visit the CIBC Advice Centre.
For Reference - Summary of Key Data Points:
Percentage of Canadians holding some form of debt, by region:
National Average 72% BC - 71% Alberta - 75% Man/Sask - 77% Ontario - 69% Quebec - 72% Atlantic Canada - 78%
Percentage of Canadians holding some form of debt, by age:
National Average 72% 18-24 51% 25-34 84% 35-44 83% 45-54 78% 55-64 67% 65 and over 56%
Percentage of Canadians holding debt who made one or more lump sum payments towards any of their debt in the past 12 months, by region:
National Average 49% BC - 55% Alberta - 52% Man/Sask - 56% Ontario - 53% Quebec - 37% Atlantic Canada - 46%
Percentage of Canadians holding debt who made one or more lump sum payments towards any of their debt in the past 12 months, by age:
National Average 49% 18-24 44% 25-34 50% 35-44 53% 45-54 54% 55-64 47% 65 and over 35%
Percentage of Canadians who directed their lump sum payments to the following debt facilities, by popularity (numbers add to more than 100% as respondents could identify more than one product they have made an extra payment to):
Credit Card 62% Line of Credit 46% Mortgage 22% Loan 15% Student Loan 6%
Among Canadians with debt, average number of debt products with a balance held by age group:
National Average 2.98 18-24 2.44 25-34 3.25 35-44 3.29 45-54 3.10 55-64 2.65 65 and over 2.42
Results are based on a CIBC poll conducted by Harris/Decima, via teleVox, their telephone omnibus solution. These data were gathered in a sample of 2,003 Canadians between March 22(nd) and April 2(nd), 2012. A sample of this size has a National margin of error of +/-2.2%, 19 times out of 20.
CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com.