According to the results of a new poll conducted by a leading insolvency firm, fully one-third of Canadians indicated that they are already feeling the pinch of increasing interest rates.
A significant proportion of the respondents in the MNP Ltd. survey also indicated fears about additional increases. 40% stated that they will be in financial trouble if interest rates go up further, and 46% said that they are concerned about their ability to service their debts in the current environment of rate increases.
Most crucially, 28% admitted that rising interest rates could move them towards bankruptcy.
“It’s clear that people are nowhere near prepared for a higher rate environment. The good news is that there seems to be at least the acknowledgement now that rates are going to climb which might make people reassess their spending habits – especially using credit,” MNP president Grant Bazian said.
Compared to the last edition of the poll in June 2017, the average Canadian is now saying they have $149 less at the end of the month after paying bills and debt obligations, although their perceived ability to absorb a 1% interest rate increase improved only slightly. The respondents’ confidence declined sharply when asked about their ability to absorb $130 in interest payments on debt.
“People are far less optimistic when we actually break down the potential dollar amount increase in debt servicing costs. This indicates that many haven’t done the calculations or they don’t understand specifically how rate increases will impact their payments,” Bazian explained.
“Small rate hikes don’t radically change household finances. The point here is that heavily-indebted Canadians, many of whom have no emergency savings, already don’t have enough money to cover their basic living costs. They’ve been using credit to make ends meet. In a higher rate environment, their lifestyle becomes unaffordable.”
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