One of the top financial priorities today for most Canadians is becoming debt-free.
A recent Manulife Bank Consumer Debt Survey confirmed that 75 per cent of the people said becoming debt-free is one of their top financial concerns.
However, 41per cent people who participated in the survey increased or failed to reduce their debt in the last 12 months.
Being debt free is a high priority for Canadians, but the survey found many people lack the knowledge of debt fundamentals.
There is a knowledge gap in understanding their credit rating, the value of debt consolidation, and how to calculate interest payments. Debt confuses Canadians.
We currently have a very low interest rate in Canada, and low interest rates encourage people to increase their debt. You need to plan to reduce your consumer debt.
The current low interest rates are not normal for past generations.
Some people assume more debt than they can afford if and when interest rates increase.
The debt level is increasing in Canada. Does this sound similar to the debt issues the United States is now facing?
Managing debt effectively helps people save money, become debt-free sooner and achieve more personal financial goals.
When you control the debt in your household, you have more flexibility to save and invest for your future.
Reward yourself when you successfully achieve a debt reduction goal. You will also realize your retirement goals sooner.
Many people juggle too many loans, struggle with high interest rates costs, and pay extra costs on creditor insurance on their consumer loans.
This will erode your net worth over your lifetime.
It is important that we are realistic in tackling our personal consumer debt.
Debt can make a big difference in your life now and in your future.
Sit down with your advisor and start to summarize all your debts on a single piece of paper. List the debt amount, the interest rates and the term of your debt.
You can then consolidate your debts into one lower cost interest bearing loan and pay off your debt sooner.
Consolidate your debit in an all-in-one account; this type of product brings your mortgage, savings and income into a single multi purpose borrowing and chequing account.
As income flows into the account, it immediately counts against debt, reducing interest charges.
This type of account can save thousands of dollars in interest costs, and allows you to become debt-free years sooner.
It is important to consolidate your debt to avoid high interest rate debt.
Do not make the credit card companies and financial institutions richer at your own expense.
Is there anyone out there paying 18 per cent annual interest costs on their consumer purchases? How about 28 per cent annual interest costs on their consumer debt?
Credit card companies get rich from charging these high interest costs and it is a legal way for them to make huge annual profits.
The big banks in Canada provide credit cards charging consumers these high interest rates. So consumers beware!
Having a conversation with your certified financial planner will help you focus on the right kind of issues when it comes to finances and this includes key debt management issues.
More than one-third of all Canadians go to their advisor first for advice about debt and daily finances.
Remember this quote:
“Debt is like any other trap, easy enough to get into, but hard enough to get out of.”—Henry Wheeler Shaw
Doreen Smith is a Certified Financial Planner with Capri Wealth Management Inc.