Interest Rate Hikes Should Have You Worried

People across North America face high debt loads. In the United States, the average credit card debt is over $15,000 per household that carries a balance. There’s a similar picture in Canada, where the average consumer debt per household is $22,000 (CAD). Include mortgages, and that figure rises to 160% of household income. In fact, while the average American’s debt has gone down since peaking in 2008, Canadians, who weren’t as hard-hit by the financial crisis, have seen their debts outpace their neighbours’ to the south.Interest Rate Hikes

High debt levels have Canadians rightly worried and the Bank of Canada, which sets key interest rates, has made it plain that interest rates are on the rise. In July, 2018, it raised key interest rates to 1.5%, the fourth increase in a year. That’s because inflation is increasing and the economy is growing. Interest rates remain some of the lowest they have ever been in the country’s history, as they are in the U.S. Rising interest rates should be a good sign, as they indicate a growing economy, something governments in the West have been struggling to achieve for years.

But that’s not necessarily good news for the average consumer. When key interest rates go up, interest rates for mortgages, car loans, and student loans go up as well. Credit cards, payday loans, and lines of credit already have high interest rates, but when your budget is stretched thin, these are often the types of debt that get de-prioritized in favour of mortgage payments or utilities. With interest rates back on the rise, more Canadians are opting for 5-year mortgages and locking in their interest rates now. That will still come with higher bills for Canadians to pay.

According to BNN Bloomberg, higher interest rates could be what push households over the edge. They reported that 28% of Canadians fear bankruptcy due to rising interest rates. What are you supposed to do if you’re one of them?

If rising interest rates mean you can no longer make your debt payments, it’s time to talk to a bankruptcy trustee, now known as a Licensed Insolvency Trustee. In the province of Ontario, bankruptcy trustees such as David Sklar & Associates allow you to file a consumer proposal or a bankruptcy without involving a lawyer. They manage your insolvency process by acting as a third-party between you and your creditors.

They can help you negotiate a consumer proposal in Ontario, a type of debt relief in which you pay back your unsecured debt in fixed monthly payments for up to five years. How does a consumer proposal differ from just paying your debts as they are? A consumer proposal will stop interest from accumulating, stop collections on your debt (such as phone calls, wage garnishments, etc.), and may even include a reduction in your total debt. It’s a more affordable way to pay back the money you owe than a debt consolidation loan.

Talk to a bankruptcy trustee in Ontario to find out if a consumer proposal is the right option for you as interest rates rise.