Rising Interest Rates in Canada Could Cripple You
Rising interest rates can get you into financial trouble if you have debts.
As interest rates increase, your repayments for various debts can start to become larger.
It can make it more difficult for you to make your payments and to pay them on time.
One of the ways you can be affected is when the Bank of Canada raises its interest rate that is used by banks to base their Prime rate on.
This means that variable mortgages and lines of credit can have increased interest rates, raising your monthly payments.
Fortunately, there are ways that you can protect yourself from rising interest rates in Canada.
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Consider Deferred Payments Carefully
When you are looking at options for borrowing money, you will sometimes find products that promise to allow you to defer payments.
Deferred payment plans may seem like a good idea, allowing you to get what you want and choose to pay for it later.
However, the longer you wait to start paying for something, the higher your interest rates might be.
The interest rate when you start paying could be higher than you expect.
Plan to Pay Off Debts Quickly
The longer you take to pay off a debt, the more likely you are to be caught out by a higher interest rate.
In addition to this, you pay more interest payments if it takes you longer to pay your debt.
When you are lucky enough to have a debt with a low interest rate, it’s smart to pay it off as soon as you can.
Make sure that you’re aware of any early repayment fees that you might need to pay first.
Create a Healthy Budget
Being able to budget your money is a must if you want to avoid getting into trouble with debt.
A balanced budget helps you to ensure that you are not spending any more than you can afford.
It also helps you to avoid getting caught out if interest rates rise and your debt repayments are higher.
You should have room in your monthly budget for unexpected expenses.
If you can’t afford your payments now, you won’t be able to afford them if interest rates rise.
Check Your Mortgage Payments
Your mortgage is most likely the largest debt that you have.
If you have a variable rate mortgage, there is a chance that the payments will increase in the future.
And if your mortgage rate is currently fixed, you need to be prepared for when it won’t be.
If you are currently struggling, you need to rethink your mortgage payments.
It might be time to look for a new deal if you are able to remortgage.
Make Use of Your Home
Your home is a valuable asset, and it can prove to be extremely useful if you need help paying the bills.
When you are having trouble with your mortgage payments or other expenses, your home can help you bring in another income stream.
You could rent out a spare room or offer storage space, parking space or other ways for people to make use of your property.
Lock in Your Mortgage Interest Rate
To protect yourself from an increase to your mortgage interest rate, you can lock it in so that it won’t rise for a number of years.
You can choose to lock in your variable rate or open mortgage so that you don’t need to worry about rising interest rates.
It’s best to do this when interest rates are low to get the best deal.
Fix Interest Rates for Larger Debts
Other debts can also have changing interest rates, but you can look into fixing them in place.
Locking in the interest rate for a loan, credit card debt, or line of credit balance could be a possibility.
You may be able to use pay-down loans to replace revolving lines of credit, for example.
Some people may find it useful to consolidate their debt into one loan or credit card.
Take a look at the resources on the Bankruptcy Canada website to discover more information about interest rates and how they can affect your debts.
If you need assistance with managing your money or debt relief, our articles and debt relief services can make it easier for you to take control of your finances.
There are various avenues to explore if you need to deal with debt and protect yourself from the possibility of rising interest rates.
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