Bankruptcy Kitchener Blog by Scott Schaefer

Since the last snowfall, the government has been issuing warnings to consumers to reduce debts as interest rates will be rising in the future. This of course is in despite of the government not listening to their own advice as the government debts are rising too, but that is another issue. We just witnessed the Bank of Canada make their first increase, so when are we going to see interest rates increase again and how fast? What do these warnings mean to consumers?

Consumer debts are reaching new levels and as all debts are tied to interest rates, any increase will have a significant affect. I have an economic degree from Wilfrid Laurier University so analyzing trends and effects is quite interesting to me, but one does not need this degree to see the impact interest rates will have on the people from Kitchener Waterloo. Every increase in an interest rate will affect everyone’s amount they have to pay. Let’s consider some of the following areas:

- First through the debts that they pay as interest rates are tied to prime – for example, line of credits, overdrafts, new loans, etc.
- Second, the cost of items we buy will have to rise over time due to businesses carrying debt. If the costs to a business go up, then they will have to pass these on to the consumer in order to maintain their profits.
- Third, higher interest rates could affect government debts as well, which are paid through taxes.

Overall, we have seen very low interest rates for a long time. People are not talking today about how mortgages used to be at 20% back in the early 1980s. That is like paying your mortgage on a visa card today. I am not saying we are going to see these high rates again, but the government is warning us to be ready for rates to increase.

The hard part is, as consumers we need to spend to help us recover from the recession, so if we are paying off our debts verses spending the money on consumer goods our economy could take longer to recover. With rising debts and costs, the question people are asking is how do we reduce our debts and still afford to live. Everyone’s situation is different so the same solution is not always available to everyone.

If you are from the Kitchener Waterloo area and feel that your situation is too tight now, then it may be time to consider a plan to deal with your debts. A debt management plan to pay 100% of your debts without interest may be one solution or a consumer proposal where you make one monthly payment to pay back part of your debts may be another. We can arrange a free consultation in my Kitchener office to review your situation and gain an understanding of how the various options would work in your situation. I can be reached at 519-747-0660 or by e-mail.

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