Wishing on a star might fill your clients with hope, but when it comes to debt reduction, its probably not going to do the trick. More than two-thirds of Canadians (69%) rank “debt-freedom” as one of their top financial goals, but nearly half feel they have lost ground in this regard, according to a national survey.

“Becoming debt-free is a goal that most Canadians share, but few put concrete plans in place to make sure they’ll get there,” said Doug Conick, president and CEO of Manulife Bank of Canada, which sponsored the survey.

This is particularly disheartening, given that low interest rates should make it easier to chisel away the principal of most debts. But instead, many Canadians seem to take it as an encouragement to take on more debt while borrowing costs are cheap.

Twenty-nine percent of survey respondents said they had amassed more debt over the past 12 months, compared to 27% in a similar poll conducted in April.

The more recent survey also found that 17% had made no change to their level of debt, while 16% had reduced their debt-load, but by less than they had hoped. Only 8% exceeded their debt-repayment expectations.

On a scale of 1-to-10, debt repayment was ranked a “10” by 32% of respondents, while another 37% ranked it an “8” or “9”.

“Often homeowners miss opportunities to reduce their debts because they don’t have the time or expertise to learn about the options available to them,” Conick said. “Luckily, more and more advisors are stepping into that gap to help their clients not only manage their debt, but integrate debt management into their overall financial plans.”

Unfortunately, 77% of those surveyed said they preferred to manage their day-to-day finances on their own.

Even worse news, many are living without much of a safety net, as savings rates have declined in Canada.

When asked about the impact that a job loss would have on their household, 17% said they would struggle to make their mortgage payment within one month. Another 43% said they would struggle to make mortgage payments within three months.

Forty percent said they would be able to continue making mortgage payments for three to 12 months, while 16% said they had flexible mortgages that would allow them to decrease their payment if needed.

Nearly two-thirds (64%) said they did not make any additional mortgage payments in the past year.

“When it comes to home ownership and mortgages, lack of payment flexibility is a significant risk that most people aren’t even aware they’ve taken on,” said Mr. Conick. “Missing required mortgage payments can have a negative impact on your credit rating and lack of payment flexibility can add extra stress to that already associated with a job loss.”

(09/16/10)