A new report by credit monitoring agency TransUnion suggests that an interest rate increase of as little as 0.25% could negatively impact almost a quarter of a million Canadians, who would suddenly find themselves unable to maintain repayment of their existing debts.
Though they have remained at record lows in recent years, and are unlikely to trend upward in the short term due to the economically motivating effects of a low-rate environment, Canadian interest rates will eventually change. Given how many Canadians use debt to finance at least part of their lifestyle, the effects of change could indeed be broad-reaching, but they need not be sudden or catastrophic. The current economic climate underscores just how important it is to plan for the reduction of unnecessary debt in the short term and the creation of stable foundations for savings, investment and growth in the long term.
Most borrowers could withstand a rate increase of 0.25 points, because it would just mean paying an added $10 or less every month toward their debt — not a severe sum. But for almost one out of every six borrowers, it would mean an extra $50 or more every month.
This is where the nuts and bolts process of personal financial management becomes more important than ever. No matter what you earn, that extra $50 is meaningful. The process of reducing non-essential debts and obligations should be the core factor in reducing the shock effect of increased Canadian interest rates – when the time comes for things to inevitably change, your finances will be more protected if you have a savings and budgeting plan already established and have done the preparatory work necessary to pay off what you can.