Carrying debt? Bank of Canada interest rate hike prompts calls to Credit Counselling Society

The Bank of Canada’s rate hike during the week is aimed at tackling inflation, but in the short term, there could be a bumpy ride for people who have taken on too much debt.

Many Canadians have taken advantage of the cheap debt that’s been available in recent times, with interest rates so low.

But with the central bank bumping up its key rate by half a percentage point to one per cent, Scott Hannah, president and CEO of the Credit Counselling Society, says they’re already noticing an increase in calls.

“It’s a number of issues. In some cases, people have utilized home equity lines of credit during the pandemic to improve their homes, purchase large-ticket items, and now they’re faced with higher monthly payments,” he explained.

This isn’t a temporary situation either. The Bank of Canada has signalled it will hike its interest rate further.

“It’s a bump in activity. People are calling because the rate now is starting to cause some worry — not necessarily because of this bump in interest rates, but what’s going to happen down the road. Given the fact that people are already dealing with inflationary issues, high gas prices, climbing food prices, this is just like the icing on the cake that’s causing a lot of concern for consumers not knowing if they’re going to be able to manage in the year ahead.”

If you are carrying significant high interest debt, Hannah says it might be time to start trying to pay as much of that down as you can.

He tells CityNews many of the people calling in for help are feeling frustrated, scared, and uncertain about what the future could look like.

“They’re nervous, they’re anxious about their situation, and unfortunately when we’re in that situation we don’t always make the best decisions, which is why we’re glad they’re calling us to be able to sit down with one of our counsellors and look at their entire financial picture. In most situations, it’s really about understanding where you’re at and planning the best way forward with factual information, as opposed to basing it on your emotions,” he explained.

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The 50 basis point rise in the Bank of Canada’s interest rate is the most significant increase it has made in two decades. Last month, the central bank raised its rate a quarter point to half of one per cent — the first increase since 2018.

Hannah admits the low-interest rate environment has likely been a sort of trap for some people, with short-term benefits available during the pandemic when the rate sat so low.

However, he’s encouraging people to “take a long-term perspective,” adding they should set a budget for themselves that is balanced and that they make decisions “based on the facts not your emotions.”

Wondering how to manage your money during times of instability? Expect the best and prepare for the worst. Check out our latest blog post to learn more:https://t.co/TzDFCzWBR6 pic.twitter.com/21ELykmhhw

— Credit Counselling Society (@CrdtCounselSoc) April 1, 2022

If you don’t know where to start, speaking with a professional is key, he notes.

“One thing we advocate for all consumers is the fact that you need to have a budget. And that budget doesn’t mean that it has to be onerous, but you need to make some decisions with your money before you get paid. Too often what we do is we get paid, we pay our expenses, and then we wonder why there’s no money left over for savings at the end of our paycheque. You really have to switch your thinking around in saying, ‘I have to plan how I spend my paycheck, savings have to be a component of my paycheck, as well as the retirement of debt,'” Hannah said, advocating people be careful with every spend they make.

He is also encouraging people to look for opportunities to reduce expenses that can improve your financial situation “with minimal impact on your lifestyle.”