The Financial Consumer Agency of Canada has released a set of tips for managing debt when interest rates go up, showing the government body is concerned about the effects of the recent rate hike.
The short release highlights several ways to make sure to manage debt properly. The most important step FCAC recommends is that Canadians review their finances and make sure they redo their budget to prioritize larger debts and higher interest debt.
Because of the rate hike — which takes the Bank of Canada’s overnight rate from 0.5% to 0.75% — most people with debt will need to make higher monthly payments. That leaves them more financially vulnerable than before. Having the right insurance policies is one good way to make sure your money is protected, but it’s important to also have an appropriately-sized emergency savings fund, especially homeowners with mortgages.
Even though the key interest rate is still at a historically low level, the government is clearly cautious that the Canadian population has grown too accustomed to low interest rates. The country has experienced strong economic growth in the past year, including a steady surge in employment.
Income growth, however, hasn’t kept up with the rising cost of living in major population centers like the GTA. With Canadians holding more debt than ever before, a rate hike — even small ones like this — will have an impact on their monthly expenses.
The general consensus is that more rate hikes are on their way. Both the Bank of Montreal and Canadian Imperial Bank predict we’ll see one in October. So get started reducing that debt load before rates rise even higher.