Many missing debt reduction opportunities

While most Canadians say paying down their debt is a top priority for them, a new study indicates that many of these same people have been unable to do so effectively.

According to Manulife Bank of Canada's consumer debt survey, 77 per cent of Canadians said becoming debt-free is very important for them. However, when consumers were asked if they've been successful in reducing their debt loads, 61 per cent said their debts were no lower than last year. In fact, one in four thought their debt levels have increased.

In addition to analyzing how Canadians have been handling their personal finances, the survey also looked at some of the factors that were standing in the way of becoming debt-free. The top three obstacles respondents pointed to were not having enough extra cash to put toward their back payments, having too many debt obligations and not being able to afford high interest fees.

"Many Canadians have told us they are unable to pay down their debts as quickly as they would like because they don't have the money, their interest rates are too high, or they have too many debts to deal with effectively," said Doug Conick, president and CEO of Manulife. "Canadians should be aware there are a variety of actions they can take to reduce their personal debt more quickly that don't take a lot of time or effort. Create a financial plan that include targets for debt repayment; consolidate debt at one low rate and, above all else, seek advice from a professional financial advisor."

Despite these recommendations, the study found that 55 percent of Canadians do not intend to work with a professional financial advisor to get advice on how they can manage their debts more effectively.

In addition, while many perceived increased levels of debt, other reports have found it be on the decline. TransUnion said that non-mortgage debts had slid during the third quarter to an average of $25,594. It was the third straight quarter without a significant increase.

The cost of paying off a mortgage was also among people's debt hurdles. And even though mortgage rates are historically low, 70 per cent of respondents said they have not taken advantage of the opportunity by making extra payments within the past year, according to the poll.

Low-interest rates could be a thing of the past, however, if some forecasters' predictions prove to be accurate. Mortgage expert Kerry-Lynn McAllister told The Toronto Star that banks are starting to increase rates because they have had a harder time making money over the past several months.

"A few months ago, there was basically a 1 per cent spread between fixed and variable," said McAllister. "Now it's .2 or .3. I don't think they’re done. We're still seeing banks increase their premiums."