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Know the facts and heed the warnings. The Bank of Canada has made no secret of its intention to raise the benchmark rate through 2019. That could expose many households to vulnerabilities. Higher rates will put a squeeze on highly-indebted households. These households should make sure they have the resources to continue servicing their debt when rates rise.
A recent CMHC report has an even more dire warning. It states that “some households might even default on their loans if their incomes are not sufficient to cover higher expenses and credit charges…” it continues to say, “Research has shown that recessions in highly indebted countries (Canada) tend to exhibit a greater loss in output, higher unemployment, and last longer compared to countries with lower debt levels.” Just to put this in context, the national debt-to-income ratio is 171%. However, that number surges to 242% and 208% in Vancouver and Toronto, respectively.
Existing households will need to make some sacrifices to keep up with the impact of the increased costs. People will have less to spend, which will impact our economy in many other ways.
So what can you do?
Pay attention to the news and understand your mortgage and credit card charges. These are your largest debt obligations. A lot of your after tax income go towards servicing them. Start by Reviewing your Mortgage Term/Rate/Payment Privileges; Maximize your savings; Make a Budget; Manage your Bills; Pay Down Credit Cards; Look for Better Credit Deals on Credit Cards. These are a few things you need to review.