The Bank of Canada recently increased the overnight interest rate to its highest level in decades, increasing the cost of borrowing for Canadians.
Given that interest rates are expected to rise further still, it’s no surprise a recent study, reported by STOREYS, found that 39% of Canadians are now worried about rising costs driving them to bankruptcy.
In this article we’ll explore the recent interest rate hike, why so many Canadians are now worried about bankruptcy, what the and the options available to you if you happen to be one of them.
Why are so many Canadians worried about bankruptcy?
As you may have noticed, there’s an affordability crisis happening all across Canada right now. Barely a day goes by without news about hikes in fuel prices, energy bills, and other everyday expenses.
Partially as a response to this affordability crisis, the Bank of Canada has recently sanctioned an increase in the overnight interest rate – the rate which dictates the cost of borrowing from banks and other financial institutions. And the rate is only set to rise further.
When the cost of living increases and people’s paychecks don’t go as far as they used to, it’s usually followed by people racking up debts in an attempt to keep pace.
But now that the interest rate hike has meant the cost of borrowing money is at its highest in decades, many people will struggle to repay the debts they take on, hence the worry about the threat of bankruptcy.
What will the interest rate increase mean for my finances?
Interest rate rises might seem like a matter best left to politicians, banks, or financial advisors, but the fallout from an interest hike hits a lot closer to home. Put simply, when the overnight interest rate rises, so does the cost of accessing credit.
The impact might touch you and your family in any number of ways. If you’re a homeowner with a variable rate mortgage, for example, you’re likely to find yourself paying more in interest each month, even if the cost of your mortgage has stayed the same.
It’s a similar story with credit cards; let’s say you typically pay $100 to settle your credit card bill every month, accounting for purchase and added interest. The most recent hike could see your monthly payment rising to $120 per month, even though you’re spending the same amount on the card itself.
Should I be worried about falling into bankruptcy?
Everyone’s financial situation is different, and there will be people who are well-placed to absorb the financial hit of rising interest rates and an increasing cost of living.
However if you are one of millions of Canadians who were already struggling before this shift in the financial landscape, then you may be wondering how your pay packet will stretch to cover the latest rise in costs.
Unfortunately, if you are struggling to manage your bills at the minute, the situation may be about to get worse. There are only so many ways we as individuals can cut costs and do without small pleasures when your debts are rising and creditors begin to put pressure on you.
That said, bankruptcy is a drastic solution to problem debt and can have a lasting impact on both your lifestyle and your credit history, so it should only ever be considered as a financial last resort.
Are there alternatives to bankruptcy if I can’t afford my bills?
Even if you’re struggling to pay your bills on time, you shouldn’t contemplate bankruptcy without considering the alternatives first.
The number one bankruptcy alternative for people struggling to repay their debts in Canada, a consumer proposal turns all your unsecured debts into a single monthly payment while taking into account your essential costs and the general cost of living.
The arrangement represents a legally-binding agreement between you and your unsecured creditors that will see you make a manageable monthly payment towards your debts. The debts that you can’t afford will then be written off at the end of your payment term.
Debt consolidation is a method of combining multiple debts into one. A single consolidated loan can often reduce your interest charges and produce a single repayment that’s easier to manage and can help you take back control of your finances.
Consolidating your debts can simplify the debt repayment process and remove some of the stress involved in managing multiple debt repayments.
Where can I get advice about coping with the rising cost of living?
If you’re struggling to keep up with rising costs and have turned to borrowing as a way to bridge the gap, then you’re not alone. Unfortunately that’s the reality for many Canadians.
But relying on credit to keep up with the cost of living is not a long-term solution; before long you may realize you’ve fallen into a vicious cycle of debt and defaulted payments.
If you’re worried about the affordability crisis and could use some reliable advice from a trained debt specialist, get in touch with A. Fisher & Associates today.