It’s that time of year again. As people attempt to ensure their New Years resolutions are still in tact past January, there’s one financial goal that many Canadians will be prioritizing: paying down debt.
A December poll conducted by CIBC found that, for the ninth year in a row, paying down debt is the No. 1 priority for Canadians going into the new year. According to the survey, 26 per cent of Canadians say they plan on prioritizing paying down debt in 2019, followed by keeping up with bills (14 per cent), growing wealth (12 per cent), saving for a vacation (7 per cent) and saving for retirement (6 per cent).
At the same time, nearly a third of Canadians surveyed said they took on more debt in the last year, largely to cover day-to-day expenses.
“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, CIBC’s managing director of financial planning, in a news release.
“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 importance of paying down debt comes at a time of rising economic uncertainty, which makes it all the more important for Canadians to take care of their financial situation, says Laurie Campbell, the chief executive officer of non-profit agency Credit Canada.
“The numbers don’t look rosy… so Canadians really need to buckle down this year,” she said in an interview.
“There’s not going to be any room for leeway if we face a recession. With debt levels as high as they are, people are really going to struggle.”
Debt has certainly been weighing heavily on the minds of Canadians in recent years. According to Statistics Canada, the proportion of credit market debt to disposable income crept up slightly in the third quarter of 2018 to 177.5 per cent, meaning that Canadians had $1.78 in credit market debt for every dollar of disposable income.
Campbell recommends that people “recession-proof” their lives, which means paying down debt, and setting up an emergency fund. Ideally, such a fund would consist of three-to-six months of income in case of a job loss, but Campbell says starting with anything is important.
“If it’s $20 a month, then start with that,” she says. “The point is that you’re starting to build a fund over time that you don’t dip into unless you can honestly say it’s an emergency.”
Golombek also offered several tips for those looking to better manage their money going into the new year.
- To start, write down your income and expenses for three months to determine whether your cash flow situation is positive, neutral or negative.
- Once that is sorted, Golombek advises making a plan. If you have money leftover after expenses, he says to use the cash towards paying off that pesky high-interest debt. Any additional cash should go towards long-term savings. If you’re cash flow neutral or negative, prioritize cutting expenses or lowering interest by consolidating debt at a lower rate.
- Take advantage of online banking and automative your debt-reduction and savings plan to coincide with your paycheck deposits. “Putting money directly to your goals right off the top can help you both achieve your goals and get by with less,” Golombek said.
- Review and prioritize your goals as the year goes on. Meeting with an advisor can help you get and stay on track.