What the Debt? What Should Canadians Do As Interest Rates Rise?

For many Canadians who have made the decision to live and work in a metropolitan Canadian city such as Toronto or Vancouver, finding ways to limit one’s debt load can seem nearly impossible.

Housing alone causes headaches for most individuals who are stuck with mortgage payments which will be on the rise, given the makeup of the vast majority of Canadian mortgages being reset after five years or less.

Now that we are entering a rising interest rate environment for the first time in approximately one decade, many investors and homeowners may have forgotten how such a scenario has impacted affordability in the past for many Canadians.

As we continue to hover around record-high debt levels, the advice of many personal finance experts is that deleveraging in a slow and steady way in the near to medium term may be the only way for many who are overleveraged to avoid disaster in the next economic downturn.

Canadians currently have the highest debt load per capita in the G7, partly due to the fact that the country experienced a milder recession than other countries in the recent financial crisis, but also due to rising housing prices in the country’s major cities – a trend which has not abated.

Trimming spending and increasing payments earlier rather than later may be the best way to combat mortgage resets when they occur, according to experts. It is my opinion that this advice –reverting back toward the traditional prudent Canadian mentality of keeping debt levels low – will serve many well in the years to come.

Invest wisely, my friends.