Bankruptcy Trustee Urging Consumers to Save and Pay Down Debt

2015-03-09   minute read

Lifestyle Debt

While many Canadians may be tempted to borrow more after the Bank of Canada’s recent cut to interest rates, local Personal Bankruptcy Trustees are strongly advising people not to. 

Two people looking at a laptop with paper spreadsheets and charts on the table

MNP’s Bankruptcy Trustee's say interest rates will go up eventually and Canadians will want to be in the best financial position as possible when that happens.

Canada's household debt-to-income ratio is already at a record high of 162.6 per-cent. Given that, consumers are being encouraged to assess their finances and choose a way to decrease their overall debt while interest rates are even lower than before.

MNP Bankruptcy Trustee, George Lomas says "If you're in a position to supplement your high-interest credit card debt with mortgage debt, that's certainly one way to get the principal paid down and reduce the risk of going into high-interest debt in the future."

He also says consumers should start planning by preparing strategic household budgets and sticking to them.

Another valuable consumer tip could include starting a rainy day fund, but Lomas says most consumers fail to stay on course.

"They come up with the plan, but they don't come up with the plan of how to realistically stay within the budget. It takes discipline, but that discipline is going to pay off when you get your debt down into manageable levels. You can call it a rainy day fund, or a savings fund for the future" adds Lomas.

A recent CIBC poll shows 74% of Canadians who experienced an unexpected financial crisis, did not have enough savings to cover unplanned spending. MNP says the best way to start put money aside, is with a new savings account specifically designed for emergencies and to try to save at least three months of your salary.

As a final tip, Lomas says if consumers are planning on purchasing a new house, they need to consider whether or not they can manage higher interest payments down the road, or if it would be possible to lock in the current rate.

As we move forward, Lomas says, "People should be aware of the risks and the changes that may be occurring in the future - with the provincial budget our taxes may very well be going up. Build that into your budget, leave some wiggle room for an expense that may happen where your disposable income will be reduced."

He adds "Right now, I think everyone's happy gas prices are down. A tank of gas that was costing you $100, is now only costing you roughly $60.There's an idea for some extra money you could be putting aside into a rainy day fund. That's called planning and assessing risk and taking it forward to secure a better future."

Consultation icon