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Canadians failing to reach debt-reduction goals: survey

Canadians failing to reach debt-reduction goals: survey

Many Canadians lack the willpower to cut their household debt, despite good intentions to curb spending appetites, new report shows.

The latest PricewaterhouseCoopers (PwC) debt and retail lending survey says 60 per cent of Canadians set a goal last year to reduce their debt. Of those, 23 per cent were able to chip away at that goal, but another 26 per cent were “outright unsuccessful,” the survey shows.

“It’s one thing to make a resolution, but it’s entirely something else to maintain the long-term discipline need to see that commitment through,” the report says. “In part, this is why the federal government has taken measures to tighten lending rules – to save Canadians from themselves and help keep them on a debt diet.”

The federal government has tightened mortgage rules in recent years amid concerns of an overheated housing market and increasing household debt-to-income ratios – which are currently at a record high of 165 per cent.

The maximum amortization for a government-insured mortgage was dropped to 25 years from 30 years last summer. The upper limit that Canadians can borrow to refinance was also dropped to 80 per cent from the previous amount of 85 per cent. It was the latest in a series of similar moves made by the government dating back to 2008 – during the peak of the U.S. housing market meltdown – when the borrowing term was cut to 35 years from 40 years.

The federal government and the Bank of Canada have also warned in recent months that household debt loads are too high, a reality brought on by low interest rates that help to keep inflation low and spur Canadians to spend more.

Credit growth slowing

On the bright side, the pace at which Canadians are piling on debt appears to be easing. Statistics Canada reported in March that household debt grew by 5.5 per cent in fourth quarter of 2012, which is the slowest pace on record since 2002.

The PwC survey also shows more Canadians see their debt levels as manageable. Among the 1,228 people surveyed, the report shows:

  • 57 per cent felt their debt level was “about right,” which is down from 59 per cent last year

  • 35 per cent said their debt was too high, up from 33 per cent a year earlier

  • Two-thirds (66 per cent) of Canadians want to reduce their debt levels, which is up from 63 per cent last year.

“Canadians remain relatively comfortable with the debt they’re carrying, but there are signs of unease,” the report states.

A Royal Bank study released this week shows total household credit outstanding was up 4.4 per cent over the twelve months ended March, unchanged from the previous month but down from 5.6 per cent in March 2012.

The bank said mortgage debt moderated for the sixth-straight quarter in the first three months of 2013, which demonstrates the government’s tightening rules are working.

“The indications of a further moderation in housing market activity support our view that demand for housing, and consequently demand for mortgages, will weaken slightly throughout 2013 as the Canadian housing market continues to transition to lower, more sustainable levels,” the report states.

The bank also said non-mortgage credit, which includes credit cards, personal loans and lines of credits, grew at the slowest pace in a decade during the first-quarter of 2013.