Ahead of rates rise, 1 in 3 fear bankruptcy

Many Canadians are so stretched financially that another interest rate hike could push them towards bankruptcy.

A poll by MNP found that 1 in 3 are concerned about that prospect, up 6 points since June; and 52% (+3 points) now say they are becoming more concerned about their ability to repay their debts if interest rates continue to climb.

“It’s been over a year now since the first interest rate increase and as rates continue to inch higher, more Canadians are feeling it. With little decrease in household debt and the pace of rate hikes expected to accelerate, we will likely see a more immediate and significant effect on borrowers with rate increases in the future,” says Grant Bazian, President at MNP LTD, the country’s largest personal insolvency practice.

Younger Canadians most concerned
The fear of rising interest rates is strongest among Millennials with 62% concerned about paying debts compared to 57% of Millennials and 40% of Boomers.

Millennials are also more likely to say rate rises will push them nearer to bankruptcy (46% vs. 38% Gen X’ers and 22% Boomers) and  to say they are already feeling the effects of interest rate increases (50% vs. 48% Gen X’ers and 38% Boomers).

“Millennials have never experienced a time when credit wasn’t cheap and easily accessible. Some have over extended themselves on their homes and vehicle payments and are in the habit of relying on credit to cope with any kind of unexpected expense,” says Bazian.

Careful spending, improving debts
Overall, 79% of Canadians say rising interest rates will make them more careful with how they spend their money.

Most remain more positive than negative towards their debt situation, despite their concern about personal finances in a higher rate environment; 28% rate their current debt situation better than a year ago, and 39% are optimistic that their expected debt situation will be better in a years’ time.

Half expect their debt situation to improve over the next 5 years.

That said, 40% say they are concerned about their current level of debt and 43% regret how much debt they’ve taken on in their life.

“Rising interest rates have forced people to take a more serious look at their debts. Still, many are reluctant to get professional help. They may not know where to go or they feel helpless,” says Bazian.