Be Prepared For Raising Interest Rates

For many years, interest rates in Canada have been at all times lows. Borrowing for mortgages, business loans, car loans, and lines of credit has been affordable. Many Canadians have taken advantage of these low rates to take on more debt and spend more. The most recent interest rate hikes have created a wake-up call to those Canadians carrying large amounts of debt.

Research conducted by Manulife Bank suggests that many Canadians are not in a position to absorb a significant interest rate increase. Seven in ten Canadian homeowners say they could not manage a 10% increase in their mortgage payments. At least one in four Canadians say they have not had enough money to pay bills at least once in the last twelve months. While being debt free is the goal of many Canadians, only 31% of those in debt met their debt reduction goals. Managing debt will help you move forward when future interest rate increase happens. Review your debt and know which interest rates could be changed on your mortgage, lines of credit, credit cards, student loans and car loans. Start to pay down your current debt as per your budget, focusing on the debt with the highest interest rate first.

Consolidating your debt into one or two payments at a lower interest rate is also a possibility and will reduce interest costs. Review your monthly spending, and track all of your variable spendings, such as dinners out, entertainment, clothes and electronics. Reduce your spending where you can to help increase debt repayment while interest rates are low. Look at your fixed costs such as cable, phone and internet and see if you can lower costs to increase debt repayment. Automate your debt payments to go out the same day you are paid, the money will go out automatically and you will not even notice it is gone.

Moving towards debt freedom will put you in a stronger financial position in the future and enable you to ride out the potential bumps in interest rates over time.