Recent increases in interest rates make borrowing more expensive. And this comes at a time when Canadians have record high levels of household debt. Large household debt not only makes us more financially vulnerable, but also affects the economy. It’s not always easy, but trying to pay down debt and avoiding new debt as much as possible will help you build resilience when interest rates are higher.
In addition to saving on everyday expenses like bringing your lunch to work instead of eating out, here are some ways to cope with an interest rate hike:
- Pay down your debt with the highest interest rate first (you’ll pay less interest in the long run).
- Consolidate high interest debts, such as credit cards, into a loan with a lower interest rate.
- Build up an emergency fund to deal with unexpected expenses, such as covering higher loan payments to avoid penalties.
Reviewing your budget
When interest rates rise and your debt payments increase, it’s important to review and adjust your budget. If you don’t have a budget, set one. A budget can help you stick to a debt repayment plan and establish spending priorities. You can use the Financial Consumer Agency of Canada’s free interactive online budget planner to create a personalized budget. It includes tips, advice and alerts to help you take charge of your personal finances.
If you expect challenges in making your payments after reviewing your budget, be proactive and don’t wait to seek help. Discuss your options with your bank. They may be able to offer temporary accommodations.
