• One in three Canadians say that they are already feeling the effects of increasing interest rates.
  • Four in ten say that if interest rates go up much more, they are afraid they will be in financial trouble.
  • Close to half are concerned about the impact of rising interest rates on their financial situation and are more concerned about their ability to repay their debts.
  • Seven in ten say that with interest rates rising, they will be more careful about how they spend their money.

CALGARY, Alberta, Oct. 23, 2017 (GLOBE NEWSWIRE) -- After years of being warned that borrowing costs would eventually rise, debt-burdened Canadians may now be facing a reckoning. A new poll from Canada’s largest insolvency firm, MNP LTD, shows that one in three Canadians say that they are already feeling the effects of increasing interest rates. Many voiced fears about additional increases, with four in ten admitting that if interest rates go up much more, they are afraid they will be in financial trouble. The same number say that they are concerned about the impact of rising interest rates on their financial situation. Close to half (46%) say that as interest rates rise, they are more concerned about their ability to repay their debts.

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“It’s clear that people are nowhere near prepared for a higher rate environment. The good news is that there seems to be at least the acknowledgement now that rates are going to climb which might make people reassess their spending habits – especially using credit,” says Grant Bazian, President at MNP LTD.

Seven in ten Canadians say that with interest rates rising, they will be more careful about how they spend their money.

The findings are part of the MNP Consumer Debt Index conducted by Ipsos which measures Canadians’ attitudes about their consumer debt, and their perception of their ability to meet their monthly payment obligations. Compared to the first wave conducted in June, the average Canadian now says they have $149 less at the end of the month after paying bills and debt obligations. Despite this, Canadians’ perceived ability to absorb an interest rate increase of 1 percentage point improved just slightly since the last poll. However, confidence wanes significantly when asked about their ability to absorb $130 in interest payments on debt.  

“People are far less optimistic when we actually break down the potential dollar amount increase in debt servicing costs. This indicates that many haven’t done the calculations or they don’t understand specifically how rate increases will impact their payments,” says Bazian.

Surprisingly, the poll found that seven in ten Canadians believe they have a solid understanding of how interest rate increases impact their financial situation.

“To get a clear idea of whether or not you can afford your debt as rates move up, you have to stress test your budget at different interest rates and determine how and if you can handle higher borrowing costs. For anyone feeling anxiety about interest rate changes, there is no shame in asking for help. If you are currently only making minimum payments or taking on more debt to cover basic expenses, you should seek the advice of a professional right away,” says Bazian who adds that a large portion of Canadians are not prepared for any kind of unexpected expenses.

The survey presented six such unpredictable scenarios and asked Canadians how confident they are in their ability to cope with them without increasing their debt. No matter the scenario, fewer than half of Canadians are confident in dealing with unexpected expenses. In fact, four in ten (42%) don’t even feel confident they will be able to cover all living and family expenses in the next 12 months without going into further debt. The same number says they are currently just $200 or less away from not being able to pay their bills and debt payments each month, very similar to the survey results in June.  

“Small rate hikes don’t radically change household finances. The point here is that heavily-indebted Canadians, many of whom have no emergency savings, already don’t have enough money to cover their basic living costs. They’ve been using credit to make ends meet. In a higher rate environment, their lifestyle becomes unaffordable.” 

Three in ten (28%) survey respondents expressed concern that rising interest rates could move them towards bankruptcy.

Other poll highlights include:

  • Compared to other age groups, millennials are the most likely to be feeling the effects of interest-rate increases (40%). They are also most concerned with their ability to repay their debts as interest rates rise (52%). In fact, four in ten (38%) Millennials express concern that rising interest rates could move them towards bankruptcy, more so than Gen Xers (30%) and Boomers (18%). Millennials are also the least likely of their counterparts to say they have a solid understanding of how interest rate increases impact their financial state.
  • Lower income earning Canadians express the most concern towards rising interest rates.
  • Homeowners are slightly more optimistic that they will have the capacity to absorb an interest rate increase of 1 percentage point or an additional $130 in interest payments on debt.
  • The prospect of rising interest rates is prompting more concern in some parts of Canada than others. Fifty-five per cent of Albertans say that if interest rates rise, they’ll be more concerned about their ability to repay their debts– ahead of those in BC and Quebec (47%), Saskatchewan and Manitoba and Atlantic Canada (45%), and Ontario (44%).
  • Concern about rising interest rates triggering a move toward bankruptcy is significantly more pronounced in Alberta (37%), followed by Quebec (34%), Atlantic Canada (32%), Saskatchewan and Manitoba and Ontario (23%), and BC (22%).
  • Only a minority of Canadians are confident that they wouldn’t incur more debt if faced with a change in their relationship status like a divorce (33 per cent), unexpected auto repairs or purchase (31 per cent), having to take three months off work due to illness (30 per cent), a job loss or wage decrease (28 per cent), a death in the family (27 per cent), or paying for someone’s education (26 per cent).

About MNP Debt

MNP LTD, a division of MNP LLP, is one of the largest personal insolvency practices in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working collaboratively with individuals to help them recover from times of financial distress and regain control of their finances. With more than 200 Canadian offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit www.MNPdebt.ca to contact a Licensed Insolvency Trustee.

About the MNP Consumer Debt Index

The MNP Consumer Debt Index measures Canadians’ attitudes toward their consumer debt and gauges their ability to pay their bills, endure unexpected expenses, follow a budget, and absorb interest-rate fluctuations without approaching insolvency. Conducted by Ipsos Public Affairs and updated quarterly, the Index is an industry-leading barometer of financial pressure /relief among Canadians. Visit www.MNPdebt.ca/CDI to learn more.

The latest Index data was compiled by Ipsos on behalf of MNP Debt between September 18th to September 21st, 2017. For this survey, a sample of 2,005 Canadians aged 18+ from Ipsos’ online panel was interviewed online. Quotas and weighting were employed to ensure that the sample’s composition reflects the overall population according to census information. The precision of online polls is measured using a credibility interval. In this case, the results are accurate to within +/- 2.5 percentage points, 19 times out of 20, of what the results would have been had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. This represents the second wave of the MNP Consumer Debt Index.

CONTACT

Angela Joyce
Media Relations
p. 1.403.681.9286
e. aj@whiterabbitcommunications.com

Britta Bisig
Media Relations
p. 1.604.836.1009
e. britta@whiterabbitcommunications.com