Toronto, ON: With interest rates sitting at historically low levels for a number of years, Canadians have managed to pile on high levels of debt. Yet most are unprepared for an interest rate hike.
This week the Organization for Economic Co-Operation and Development (OECD) called upon the Bank of Canada to more than double its trendsetting interest rate to 2.5 per cent by 2015.
And while this may not seem like a major increase in the key lending rate, “such an increase would likely lead to a corresponding hike in variable rates and high fixed mortgage costs for Canadians.”
“The biggest concern is not if rates will go up,” says Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc. “The concern is whether or not Canadians will be able to support their debt obligations when interest rates go up.”
As an organization that helps Canadian consumers resolve their problems with debt, Consolidated Credit recommends Canadians use announcements, like the one from the OECD, as an opportunity to give themselves a financial check-up.
“Reviewing your finances today will help determine if you will be able to handle increased payments tomorrow,” adds Schwartz. “Once you know where you stand financially, you can begin to risk proof your budget to ensure you can handle future increases in your debt obligations.”
To help Canadians prepare and plan for any future financial uncertainty, Consolidated Credit offers these tips:
Deal with debt while rates are low. If you are carrying high levels of credit card debt, consider consolidating and eliminating these debts while interest rates remain low. Keep in mind, making the same payment at a lower interest rate will help eliminate your debts sooner.
Stop using credit. This may seem obvious, but in order to have a successful debt elimination plan you need to ensure that you are not taking on any more debt. Using credit while tackling a debt repayment strategy is a lot like running on a treadmill – a lot of work to get nowhere!
Set aside some savings for the unexpected. Having an emergency fund of at least three to six months’ worth of living expenses is essential for any successful financial strategy. You need to be prepared not only for an increase in debt payments, but for any other situation that could leave you financially vulnerable.
Create a budget – Again, this may seem obvious but creating a budget is key to helping Canadians live healthy financial lives. It is impossible to address debt repayment and rainy day savings without a financial plan in place.
For most consumers, the best way to protect against the threat of rising interest rates is to keep your head out of the sand and plan for every financial possibility. To help Canadians further prepare, Consolidated Credit has created this infographic to help consumers weather any future financial storm.