Consumer Alert: Managing debt when interest rates rise

Ottawa, Canada

At a time when Canadians are carrying record amounts of debt, the Financial Consumer Agency of Canada (FCAC) is advising consumers to take steps to manage a rise in interest rates.

An interest rate increase requires consumers to make higher monthly payments on credit products and loans such as variable interest rate mortgages, personal loans and lines of credit. Interest rate increases could also impact loans that are coming up for renewal such as fixed rate mortgages. For some consumers, higher debt payments means having less money to put toward other expenses.

Consumers may be more vulnerable if a larger share of their disposable income is applied to servicing their debt, since they may lack flexibility in their monthly budget to cope with higher borrowing costs.

A rate increase is a good time for consumers to review their finances. FCAC recommends consumers review their budget to see how higher interest rates will impact their payments and take steps to manage an increase, such as:

• paying down larger debts, especially those with the highest interest rates
• making prepayments on their mortgage or accelerating mortgage payments
• cutting expenses and putting more money toward paying down debt
• avoiding taking on more debt
• setting aside savings to deal with unplanned expenses
• consolidating debts with high interest rates into a loan with a lower interest rate