This past weekend we talked about the amount of highly indebted Canadian families, a group that the Canadian government remains concerned about. The concern is valid, as BMO has just done their annual debt survey and found that not only are Canadians taking on more debt, but they’re finding it’s also taking longer to pay that debt off.
According to the survey, the number of Canadians with debt has risen to 83 per cent, an increase of nearly 10 per cent from last year’s 74 per cent. Those in Alberta had the highest amounts of debt with monthly payments of $1,225 on average; while Quebec enjoyed the lowest amount of debt on average, with monthly payments there totaling $768.
However, that debt repayment amount has gone down throughout the country as a whole. While last year we were paying, on average, $1,138 in debt repayment, this year that’s been lowered to $986.
BMO Vice President Janet Peddigrew says that these numbers show one of two things. Either Canadians are finding it difficult to pay down their monthly debt, or they know that low interest rates aren’t racking up even more debt, and so they’re simply in no hurry to pay down those balances.
“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 says.
But it doesn’t seem to be the actual debt that’s the problem. In fact, the majority of Canadians said that they lowered their debt from last year, while only a fraction said that they have increased their debt.
Those interest rates come largely into play when talking about mortgages. 10 years seems to be the magic number this year for paying that huge home loan off, while others are looking at paying it off even quicker than that.
Those mortgages were also the largest source of debt indicated by those surveyed. Not surprisingly, car payments was the second highest source of debt, and student loans the third-highest.
All of those forms of debt have interest attached to them, and with people having less debt on a whole than last year, it seems as though it would be low interest rates that are to blame for our sluggish movement in getting these numbers down. However, Ms. Peddigrew cautions that counting on interest rates to remain low for any length of time is a dangerous game.
“If there is any message that comes out of this, it is to be prudent and look at reducing your debt levels now that interest rates are still low because we all know that they’re going to start creeping up,” she says.
“Time is of the essence. If you can afford to pay more on a monthly basis, do it and get it reduced.”