Canadians desperate to get out of debt as interest rates climb

The Bank of Canada raised its key interest rate by another quarter-point, to five per cent, Wednesday morning as economists say the labour market is still tight and inflation pressures are still high.

With money being so tight for so many people, some Canadians are desperate to get out of debt.

Mark Kalinowski with the Credit Counselling Society says a lot of people emerged from the height of the COVID-19 pandemic broken with their financial situation in ruins. He adds that inflation, the increased cost of groceries, and the overall cost-of-living crisis, not to mention the high cost of gas and housing, are making things even worse.

“People are going to pay hundreds, if not maybe sometimes thousands of dollars more on their mortgages as these rates continue to rise when they go to renew,” he told CityNews.

He describes the heartbreaking situation of some clients choosing between the basics like eating or keeping a roof over their heads or feeding their families and putting gas in the car.

“Honestly, as a counsellor, I’ve had people come in weeping uncontrollably for 15 minutes because they’re so stressed out.”

“They feel like they’ve let the world down, but once you start putting their budgets together and getting their numbers down, once they start taking power, they leave feeling like they can take on the world. They feel like they’re ready for the next step.”

Kalinowski says a lot of people are turning to the gig economy and picking up part-time work to supplement their income.

“Some people definitely are turning towards the SkipTheDishes, driving Uber, or maybe babysitting a little. Again, what we’re talking about, with such drastic interest rates changes, especially for those people who own homes, or those people who are renting and seeing their rent go up so much, we’re not going up $100 where we can easily just pull a little bit out of our budget. It’s not necessarily about giving up our coffee at this point, it’s about needing more money to make it work.”

Kalinowski says one fallback is people will lean on credit cards to get by, which is financially dangerous.

“They don’t know what their next step is. They’re scrapping by and making all their payments [and] maybe using their credit cards to help them get by this month, but their credit cards are running out of room.”

Related Article: Bank of Canada raises key rate to 5%, highest level since 2001

He says there’s no shame in asking for help, in fact, the sooner the better so things don’t get out of control.

Kalinowski suggests making or checking your budget and then cutting back severely if you feel you’re on the brink of either going into debt or falling deeply into the red. That includes nixing any vacations, thrifting all your clothes, holding off on upgrading your car and not buying some of the more expensive items at the store, like meat.

The Credit Counselling Society admits things have escalated so quickly that it has changed its business model. The service still accepts appointments, but Kalinowski says counsellors are now waiting on stand-by to help because it’s overwhelmed by the demand.