Dealing with debt: Experts break down ways to manage as Canadians struggle

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Bank of Canada hikes key interest rate 50 basis points for 2nd time in a row
The Bank of Canada raised its benchmark interest rate to 1.5 per cent on Wednesday, marking a second straight increase of half a percentage point. The 50-point move was widely expected by economists, who predicted the central bank would raise rates again in an effort to tamp down on high inflation levels – Jun 1, 2022

The cost of living has reached astronomical levels over the past few years in Canada. Filling your car with gas, buying groceries, paying bills — all while dealing with rising interest rates — have left Canadians across the country struggling with debt.

“We are starting to see that rise in Canadians really noticing their debt levels,” Taz Rajan, community engagement partner at Bromwich and Smith, a Canadian debt relief and consolidation service, told Global News from Alberta. “We are definitely seeing more and more Canadians facing their debt.”

Consumer debt spiked by 8.6 per cent in the first quarter of 2022, climbing to $2.3 trillion over the last year, according to Equifax Canada’s June 2 Market Pulse consumer credit trends and insight report.

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Moreover, many in debt don’t know how to get help. One in three Canadians don’t know where to turn for relief, according to a recent Ipsos poll conducted on behalf of MNP LTD., the largest insolvency practice in Canada.

Nearly half of Canadians say they would be embarrassed to seek help if their financial situation was bad enough to consider bankruptcy, found the survey, conducted between March 9 to 15 of this year, sampling 2,000 people over the age of 18.

“It may feel like it, but it’s not the end of the world. The sky is not falling. It’s actually an opportunity to conquer that debt and rebuild your worth,” said Rajan.

Click to play video: 'Controlling your debt as interest rates climb'
Controlling your debt as interest rates climb

Tips for managing debt

Keep in touch with your lenders, Rajan says, and remember you’re their client.

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“Communicate with your lenders. It’s easier for any business to keep the client they already have, than to go out and look for a new one. So, answer the calls, open the mail.”

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According to MNP LTD. president, Grant Bazian, step one is getting over the bad debt stigma.

I think the first thing they have to get over is the stigma associated with bad debt. They feel alone, like they’re the only one suffering through it,” he told Global News. “People overspend and find themselves in financial trouble for a variety of reasons. They’re not alone.”

The next step is finding the right help, he added.

“The internet can be full of so many different resources, it can be mind boggling for most people. Who do you trust? You don’t know who’s credible and who isn’t,” said Bazian, noting a licensed insolvency trustee is a great option.

A licensed insolvency trustee is a federally regulated, highly qualified, debt professional.

Speaking with someone about what options are available to help conquer debt often relieves much of the anxiety faced by Canadians who struggle with debt, according to Bazian.

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“I think a lot of anxiety and nervousness goes away because then you understand the ramifications of choices,” he said.

Debt doesn't discriminate

Debt doesn’t discriminate, according to Rajan.

“We work with high end CEOs who are making three or $400,000 a year. And then we work with single moms who are on supplemental income and everything in between,” she said.

However, there are certain populations that Rajan says struggle with debt at higher rates. One being the “sandwich generation,” or parents with young children and also aging parents.

“There’s just less and less squeeze in that already squeezed generation,” Rajan said.

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Older generations who are ready to retire but have had their retirement plans derailed — perhaps because of their need to support a child or an unprecedented hit on their investments — have also experienced increasing debt concerns.

Younger generations can be impacted disproportionately. Younger Canadians aged 18 to 34 are the most likely to say they don’t have a solid grasp on how their finances are affected by rate hikes, and the most likely to say they have paid for ineffective financial advice, according to the MNP LTD. survey.

How to avoid debt

Although it’s a common tip, budgeting is a seriously important tool, industry experts say.

“We’ve heard it 100 times and you’re probably sick and tired of hearing about budgeting,” Rajan said. “It’s really going to help you see where you’re at — what’s coming in and what’s going out.”

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Another tip is to create an emergency fund, no matter how small.

“We don’t tend to talk about money, we don’t tend to talk about debt,” said Rajan. “I’m here to say, just start wherever you are. If it’s $50 today, do $50.”

Future of debt

The spike in Canadians struggling with debt is expected to continue to increase over the next several months, experts forecast.

“I don’t think we’re plateauing. I’m inclined to think it’ll probably get worse. You’re going to have more stress with the average Canadian and you’re going to have more people needing to seek debt assistance,” said Bazian.

Click to play video: 'Tips for your money amid higher interest rates'
Tips for your money amid higher interest rates

Consumer reliance on credit cards has already seen a 17.5 per cent climb in the first quarter of 2022, comparted to last year, according to the Market Pulse report.

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What we’re starting to see is over the next six months to two years, a bit of a spike in Canadians realizing how bad the debt is and actually wanting to do something about it for sure,” Rajan added.

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