An anticipated further interest rate hike this year will create increased financial turbulence for the individual pocketbooks of British Columbians.
According to the latest Consumer Debt Index report, one-third of British Columbians expressed fears of another interest rate increase would move them closer to bankruptcy, an eight-point rise since June, and the highest increase registered compared to other provinces.
Nearly half of British Columbia CDI survey respondents say they are becoming more concerned about their ability to repay their debts if interest rates continue to climb, and 45 per cent say they already are feeling the affects of higher current interest rate levels.
“With the cost of living in the province trending upward along with the pace of debt accumulation, we are going to see a more immediate and significant effect on borrowers with rate increases in the future,” said Linda Paul, a Licensed Insolvency Trustee with MNP Ltd., Canada’s largest insolvency practice.
Paul said people generally had grown complacent with budgeting because of the easy availability of credit and low interest rates over the last decade, but as the cost to service those debts increases the financial hit on households can be sobering.
“The biggest regret we hear from people is about making those impulse buying decisions in the moment without thinking through the consequences,” Paul said.
She cites the example of whipping out your debit card on a daily crisis to buy that cup of coffee, a seemingly minor purchase that adds up over time.
“It may not seem like much at $5 a day, but add that up over five years and suddenly that amounts to $9,000. So it pays to brew your own at home.”
She said while bankruptcy filings in B.C. are actually done two per cent over last year, but she suspects as interest rates go up people often turn to the equity in their homes to keep themselves financially afloat in the face of mounting debt.
She notes while Okanagan real estate sales are down, so far housing prices have remained stable, while prices have declined in the Lower Mainland.
“As prices fall, that ability to draw out wealth from your equity becomes not as readily accessible as it used to,” Paul said.
“And the new mortgage rules in place have made it harder to buy homes for first-time buyers to begin with.”
Paul said the best advice she can give is to seek out financial debt planning help immediately when your financial tables start to turn in a negative way, understand the cost of borrowing and live within your cash financial means.
“My biggest takeaway from this latest (Consumer Debt Index) report is don’t wait for things to snowball out of control. That often limits your options and you end up dealing with garnishee wages or legal actions filed against you.”