In the wake of the Bank of Canada’s interest rate hike announced July 12, the Financial Consumer Agency of Canada (FCAC) is advising consumers to take steps to manage their debt.
Canada’s big banks all boosted their prime lending rates 25 basis points following the BoC’s decision. FCAC warns that with rising rates, consumers may be more vulnerable if a larger share of their disposable income is applied to servicing their debt.
High debt and low savings
"Many Canadians have high debt and low savings. Even a slight increase in interest rates puts Canadians at risk of carrying debt over longer periods of time, leaving them more vulnerable to unforeseen events or unexpected expenses. We know that those who budget, make plans to pay off debt and set savings goals usually succeed," says Lucie Tedesco, FCAC.
FCAC recommends that consumers review their budget to see how higher interest rates will impact their payments. They can take steps to manage rate increases, such as:
- paying down larger debts, especially those with the highest interest rates
- making prepayments on their mortgage or accelerating mortgage payments
- cutting expenses and putting more money toward paying down debt
- avoiding taking on more debt
- setting aside savings to deal with unplanned expenses
- consolidating debts with high interest rates into a loan with a lower interest rate