Canadians concerned how higher interest rates will impact their finances: survey

Never before have interest rates been low for so long, but now, there is growing speculation that on Mar. 2 the Bank of Canada will start the first in what could be a series of rate hikes.

“Low interest rates are not sustainable and they are not here to stay, so you need to stop the spending and shut it down because interest rates are going to go higher," said Pattie Lovett-Reid, CTV News’ Chief Financial Commentator.

Many analysts feel that the central bank could start by raising the key rate by 25 basis points or .25 per cent.

Canadians who are already feeling the financial squeeze at the gas pumps and facing rising food costs in the grocery aisle may need to prepare for higher borrowing costs on variable rate mortgages and lines of credit.

A survey by MNP LTD, an accounting firm that is also one of Canada’s largest consumer insolvency firms, found that 55 per cent of Canadians are concerned about the impact of rising interest rates on their financial situation and 47 per cent said rising rates could cause them financial trouble.

"I think they have to be very concerned about the debt load they have and to try and not live beyond their means," said Grant Bazian, president of MNP LTD.

Bazian said the combination of the pandemic, inflation and rising rates could create a tipping point for some consumers. Thirty-five per cent of those surveyed said rising rates could push them towards bankruptcy.

The survey also found 26 per cent of respondents said they paid only the minimum balance on their credit card each month.

"I think [anyone only paying the minimum payment] has to take a cold hard look at this situation and say I need to get out of this. I need to stop spending and pay more than the minimum to get out of this because it can snowball," said Bazian.

The minimum payment usually just covers the interest portion and not the principal amount. Meaning, it could take years or even decades to pay it off.

The survey also found a gap when it comes to finances. While 16 per cent of those surveyed described their financial situation as poor, 18 per cent rated their financial situation as excellent.

Bazian said anyone struggling should consider using a budget, which some may see as boring, but they can be extremely helpful.

"Watch what is going in and watch what is going out. It's the first step towards getting a hold of your finances," said Bazian.

While the bank could decide to raise its key interest rate next month, some analysts predict there could be another two to three hikes as well throughout 2022.