It’s the talk of the town ahead of the official long weekend of summer: interest rates look to be heading higher sooner rather than later.
This time it appears to be for real. The days of easy money may slowly be coming to an end. To be fair, rates aren’t likely to rocket higher overnight, but even a gradual increase can have an impact on a family’s bottom line with so many living close to the margin. We have been living in a low-interest rate environment for so long we have become a little complacent with a minimum payment mentality, ignoring the fact the low minimum payments would end.
We are right on the cusp of summer vacation time and while a higher dollar helps out our travel plans to the U.S., for example, it is a moot point if we can’t afford to go. As rates head higher, Canadians are worried about their ability to cope with the fluctuations, according to a survey by MNP, with 72 per cent rating their ability to deal with a one per cent interest rate increase as less than optimal. Just one in four say they could absorb an additional $130 per month in interest payments on debt.
Higher rates equal higher payments and that is a tough reality for many.
The reality is we only have so much money coming in, and if more of our discretionary income is aligned to debt, there is less money for travel and fun. The majority of Canadians (56 per cent) say they won’t be going on vacation this summer and the time off won’t come cheap for the 44 per cent who will. Canadians plan to spend on average $2,149.20 when all expenses are factored in – including travel, meal, accommodation.
Beyond interest rates, other financial concerns include losing your job. The MNP survey found three in 10 worry about a family member being out of work.
Now is the time to look closely at how much money you have coming in and what it is you are spending your money on. Summer is like the holiday spending season and no one should go into debt to pay for a vacation. And if you aren’t worried about higher rates, unfortunately, I think you should be.