What is the Bank of Canada, and What Do They Do?

The Bank of Canada is the country’s central bank; it is a special type of Crown corporation belonging to the federal government that exists “to regulate credit and currency in the best interest of the economic life of the nation” with their primary role being “to promote the economic and financial welfare of Canada”.

Monetary policy is a core Bank of Canada function, and two main instruments used in this are its inflation-control target and the key policy rate:

• Inflation is the persistent rise in average price levels over time, and the Bank of Canada aims to maintain a stable price environment – a low, stable, predictable inflation is their goal. With price stability and low inflation, prices change so slowly there’s no major effect to how people spend, save, or invest.
• The Bank of Canada adjusts its key policy interest rate up or down as needed to achieve its inflation target. Doing so influences financial institutions’ interest rates, borrowing and spending, and pressure on prices.

What Does the Bank of Canada’s Interest Rate Mean for Other Banks?

Financial institutions borrow from each other and can also use the Bank of Canada, and by setting their policy rate the Bank of Canada encourages financial institutions to borrow and lend amongst themselves near the policy interest rate too. What this means is that although the public doesn’t borrow with the Bank of Canada, their policy rate affects interest rates on products such as:

• The prime rate for loans and lines of credit
• Mortgage rates
• Interest on savings and deposits

When the Bank of Canada changes their rate, lenders will generally adjust their prime rates shortly after.

• Prime rate is the annual interest rate our major banks and financial institutions use to set their interest rates for variable credit products, including loans, lines of credit and mortgages with a variable rate.

How Interest Rate Increases Impact Common Consumer Credit Products

Depending on which products (types of debts) you have, and whether your debts have fixed or variable interest rates, the impact of an interest rate increase can vary widely, from very significant to having no impact at all.

• When you have a fixed-rate debt you agree to pay the same interest rate over the course of your repayment term, regardless of shifts in the economic market.
  • One benefit with this type of borrowing is that you’ve got stability in paying the same interest rate (until you need to renew, such as with a mortgage at the end of a set term).
• With variable interest rates, as the prime rate goes up or down, so does the interest you’re being charged on your debt. When you apply for credit with a variable interest rate the lender will offer you an annual interest rate tied to the bank’s prime rate.

Below is a breakdown of different types of common consumer debts, and how they may be impacted (or not) by interest rate changes:

Mortgages

The biggest impact of interest rate increases is likely to be felt by homeowners who are carrying variable interest rate mortgages.

• On a variable rate mortgage, quite simply, most payments will see an increase because of rate hikes. Most banks adjust quite quickly – people might see the impact even by the next month.
• Just a small interest rate hike can be very impactful. For someone with a variable mortgage of 2-3%, even a 1% increase in interest rates can translate up to a 50% increase in the interest being charged on the mortgage.

Conversely, on a fixed rate mortgage, your payments will not increase as you have ‘locked in’ the rate you will be charged over the term of the mortgage. At renewal time however, you can expect that the rates you locked in at previously may no longer be available and your new interest rate upon renewal could be significantly higher.

Can I Get a Mortgage After a Bankruptcy or Consumer Proposal?

Lines of Credit and Home Equity Loans

Most lines of credit (whether secured against your home or not) are offered with a variable rate, which means there is a direct impact of an interest rate increase.

• Higher payments will be required immediately, and this can be very significant – especially if you are financially stretched and are capable of paying just interest only on your line of credit.

Vehicle Financing

Most vehicle loans are structured with a fixed interest rate, meaning that payments wouldn’t change at all.

Although an interest rate hike won’t cause a direct increase on your monthly vehicle financing payment with a fixed interest rate, individuals with vehicle financing should be aware that:

• If you decide to trade-in your vehicle before the end of your financing contract, you may absorb the ‘negative equity’ (i.e., the value of your vehicle, less the amount you still have to pay on the original loan contract).
• New loans applied for following an interest rate hike will most likely have higher interest rates, and as a result will come with an increased cost to borrow.

If you do have a vehicle financing contract with a variable interest rate component, normally a rate-hike will mean extending the time you’ll make payments so that the additional interest rate costs are paid. 

An Overview of ‘Seize or Sue’ and Vehicle Loans in BC – Learn More

Student Loans

If you have a fixed-rate student loan you won’t be impacted with increases in your interest rate or monthly payments, but following increases in prime rates, future student loans can become more expensive.

However, if your student financing is using variable rates, both your interest rate and minimum payments will increase with interest rate hikes.

Are Credit Cards Impacted by Interest Rate Changes?

Most credit card terms are set without regard for prime interest rates and if your only debt is on credit cards then your monthly payment requirements are unlikely to be impacted by an interest rate increase.

With standard credit card interest rates hovering near 20%, the very real danger of interest when it comes to credit card debt is that the interest charged is always expensive, regardless of fluctuations in the Bank of Canada rate.

• If you’re not paying off your credit card in full each month you accrue interest charges – a cost of borrowing – and then only a portion of your payment goes towards paying down the amount you actually charged on the card.
  • In some cases, just $10 of what you pay each month goes to reduce the balance; the remainder covers interest and finance charges that reoccur each month.
  • Check your monthly credit card statement to see a breakdown of how long it will take you to pay off your credit card balance if you only pay the minimum payments each month. The number might surprise you!
• If you miss a payment, you could find your bank raises your credit card interest rate because of the ‘delinquency’. Increases of up to 5-10% are not unheard of.

Dos and Don’ts for Credit Cards and Managing Credit Card Debt

What Can I Do About Rising Interest Rates?

The single biggest and best thing you can do to prevent or mitigate being impacted by interest rate increases is to pay down as much of your debt as possible – and even if you’re mainly carrying debts not likely to be impacted by rate hikes, the sooner you get out of debt the better.

• Calculate your “Rule of 60 Math”: Add up your total (non-mortgage) debt then divide that number by 60.
  • Is that figure a monthly payment you could afford to pay so that you’ll have your debt paid off in five years (60 months)?
  • If that hypothetical payment is not affordable for you, or you think it would be difficult to consistently manage, connect with a Licensed Insolvency Trustee about your options for dealing with debt – especially if you’re already in (or are approaching) a position of being over-extended.
• If you’re a mortgage holder, you may want to research options for locking in your mortgage to a fixed rate. Though often more expensive in the long-term, a fixed rate mortgage can give you certainty for your budget.
  • Be sure to shop around for the best rates and consider using a mortgage broker.
• Proceed with caution if you’re considering restructuring your debts with consolidation loans or balance transfers – it’s important to fully understand the full costs of borrowing before signing any documents.
  • If your credit history has been impacted by an unfavourable debt to income ratio you may find it difficult to qualify for a line of credit or consolidation loan at a low interest rate, or at all.
  • Make sure you can realistically stick to the budget needed to get your debt paid off and are not simply delaying an inevitable cash-crunch.

Learn More About Credit Reports and Scores in Canada

Consolidate and Cut Your Debt – Without Borrowing

Although you might consider a new loan or line of credit, a Consumer Proposal provides a welcome alternative to consolidate your debt without turning to more borrowing and paying interest charges:

• A Consumer Proposal allows you to pay off your consolidated debts without any further interest charges, and your creditors will agree to accept repayment of typically as little as 20-50% of your balance due, in full settlement of your accounts.
  • Virtually all types of debts can be consolidated and reduced with a Consumer Proposal – from credit cards to lines of credit, overdrafts, income tax debt, CERB overpayments, student loans and more.
• Your credit history or credit score are not factors for eligibility, and no co-signer is needed.
• You can pay off a Consumer Proposal early at any time without penalty.

Connect with a local BC Licensed Insolvency Trustee to learn more about Consumer Proposals and explore your options.

Licensed Insolvency Trustee Blair Mantin Talks Interest Rates and Debt Solutions

Sands & Associates President and Licensed Insolvency Trustee Blair Mantin joined Global News and Breakfast Television Vancouver to discuss what Canadian consumers should know about interest rates and debts, including what you can do to deal with problem debt. Watch the clips here:

Sands & Associates’ local office network serves communities across BC, and our full suite of debt help services is available online, by phone, or in-person. Connect today at no cost to discuss your situation and learn about your options.

The post Understanding Interest Rates – and Why They Matter if You Have Debt appeared first on Sands & Associates.

Strategies to Pay Off Debt

Debt payments can be a big demand on household income, and this is a key reason why paying off debt is a high-priority financial goal for many consumers. Everyone’s personal situation and needs are unique when it comes to ‘how best’ to deal with debt though, and it’s important to remember that the types of debt, balances, and personal circumstances you have will greatly impact the pros and cons of your options.

If you are looking for ways to pay off your debt, you might consider some of the following strategies.

Do-It-Yourself Debt Payment Plans: If you don’t have a lot of debt or other demands on your finances, you may be able to clear your debt with a self-directed plan and some careful budgeting.

• After listing all your debts, you may choose to prioritize paying off certain debts first based on factors such as debts with the highest interest rates, or debts with the lowest balances.
  • You might also benefit from contacting your creditors to try to negotiate lower interest rates on your debts.

Keep in mind that if it would take you longer than five years to pay off your debt, you may find yourself paying a lot in interest over time – and if you don’t have enough money in your budget to accumulate savings at the same time you’re paying off your debt, you’ll be especially vulnerable to unplanned costs setting you back.

Compare Your Debt Options

Enter your total amount of debt (excluding mortgage and car loan) and we’ll show you a list of options.

Refinancing Your Debt: You may be able to save some money on interest costs by combining eligible debt balances into a line of credit, consolidation loan or even a ‘balance transfer’ to a different credit card with a lower interest rate.

• This type of debt solution doesn’t come with any special benefit besides repaying your debt at a lower interest rate – you’ll still repay all your debts in full, with a bank collecting interest and other financing fees for lending you the money to pay off your other creditors.
  • You’ll likely need to leverage equity in a major asset or rely on a relationship with a family member or friend willing to co-sign for you to use this type of solution, both of which can be highly risky.

Debt Repayment with a Credit Counselling Program: If you have only a few basic consumer debts with low balances, a debt repayment plan offered by a credit counsellor may allow you to repay your debts in full without ongoing interest charges.

• Credit counselling plans don’t cut balances, they just (usually) freeze future interest charges.
• Always confirm whether you have any debts that would need to be paid separately to the credit counselling payments.
  • Any government creditors (such as Canada Revenue Agency for example) will not accept credit counselling program payments and will continue to charge interest and pursue you for payment.
• Make sure the amount you will save in interest costs is greater than the credit counsellor’s fees. Even non-profit credit counselling plans cost money!

Solutions to Pay Off Your Debt Faster

When it comes to ways to reduce, settle, cancel or forgive your debts, there are a few potential options to do this, though it is very important to understand that in Canada the only way to safely, legally cut your debt is by working with a Licensed Insolvency Trustee.

• Licensed Insolvency Trustees are Canada’s only federally-regulated debt help professionals, specifically trained, and certified to provide consumers debt advice and debt management services.

Making a Consumer Proposal

(Only available through working with a Licensed Insolvency Trustee)

If your total (non-mortgage) debts are under $250,000, a Consumer Proposal could be an ideal choice to consolidate and cut your debt.

Consumer Proposals are one of the most popular solutions offered by Licensed Insolvency Trustees and can provide you significant advantages in managing debt, including:

• Consolidated debts are frozen, and there are no added interest costs.
• Debts are often cut by up to 50-80%.
• Your credit history is not a qualifying factor.
• Your creditors will be bound by the accepted Consumer Proposal and cannot change their minds, nor pursue you for collections, wage garnishments, etc.
• You can pay off your Consumer Proposal early at any time without penalty.
• There are no added professional fees added in or on top of your debt payments.
• A Licensed Insolvency Trustee will work with you throughout the process, and handle communication with your creditors.
  • A Consumer Proposal can ONLY be filed by working with a Licensed Insolvency Trustee. Don’t be fooled by ads for services that sound similar but are offered by a credit counsellor, debt consultant, or debt settlement agency.

Consolidating Debt with a Consumer Proposal: Step-by-Step

Negotiating Debt Settlement

(May be able to do on your own, or with a debt consultant)

If you have cash on hand, you may try to negotiate with your creditors, offering them a lump sum of money to settle your debt for less than the total balance you owe. Some people also try to work with a debt consultant for this type of debt reduction service.

• Extreme caution should be used with any debt settlement company. Not only will you be charged fees for these services (or even unnecessary services or referrals), but some also employ high-pressure sales tactics, make unrealistic promises, and encourage strategies that can aggravate your situation with your creditors.
  • For example: You might be told to stop making your debt payments so you can instead save up money to accumulate a lump sum settlement to be offered to your creditors. In the meantime, you have no protection from creditors, who might start collection or legal action against you due to their debts going unpaid.
• Review any contracts or agreements carefully before signing, and never send money before researching the company.

Filing for Bankruptcy

(Must be administered by a Licensed Insolvency Trustee)

If your situation is such that you have very minimal income, or other extenuating circumstances that make any sort of debt repayment a hardship, you may want to explore whether bankruptcy could be the best option to forgive your total debts.

Although many people are anxious about the idea of declaring bankruptcy, or fearful they will not be able to recover financially, the reality is that personal bankruptcy is a relatively straightforward and private legal process that offers debt relief and a financial fresh start.

• Filing bankruptcy will immediately trigger a freeze for your creditors and in as little as nine months you can be discharged (released) from bankruptcy with all your debts forgiven, allowing you to move forward with your life.

Is Personal Bankruptcy Right for Me?

Getting Debt Advice

Most people don’t know what resources they have available for support in managing their debt, and this often means people have a series of trials and errors before a debt repayment plan that gives them good results. Unfortunately, these false starts or unsuccessful attempts to manage debt can be not only discouraging, but also come at a cost to finances, time, and personal wellbeing.

If you’re dealing with anything debt-related, a Licensed Insolvency Trustee is the most appropriate resource to seek out and should be your first contact.

You don’t have to navigate the complexities of managing debt alone or pay money to get complete information and qualified advice from an expert. In an hour’s free consultation a Licensed Insolvency Trustee can help you fully understand your situation and all your options.

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– Jayvee Lester De Castro

I highly recommend Sands and Associates especially Jennifer Thom. If you have problem with you debt. She will give you the best options and support throughout the process. – Jayvee Lester De Castro – 1 day ago 

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– Jarrod Barratt

I’ve been having financial hardship for quite some time now and I am pleased I reached out to Sands & Associates recently. They were very quick to get started on helping me with relief and I never once felt judged in the process. Omer and Jennifer were very polite and informative in the process and I thank you very much for your help and support. I would recommend Sands & Associates to anybody looking for some flexibility in their financial struggles. – Jarrod Barratt – 2 days ago 

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– All the good things

I found Jennifer Thom to be very helpful and friendly going over my options to get my debt dealt with. I felt welcomed without judgment and she made my stress and anxiety lessen which was huge for me. Thank you for your help and I look forward to a new future where I can be in control and not worried about how I’m going to survive debt. All the best. Will recommend. – All the good things – 2 days ago 

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– Saba N.

Sandra was amazing from start to finish with my consumer proposal. From answering questions and getting back to me in a timely manner when I knew she was very busy, the process was quick and painless. Paying this off will be great and then I can build up my credit again! Thanks again, Sandra ♥️ – Saba N. – 2 days ago 

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– Ali D

I went to Sands & Associates because I was overwhelmed with my debt and had no idea what to do. Camille helped me set up my consumer proposal, and honestly, she made the whole process so much easier than I expected.

She explained everything clearly — what a consumer proposal is, how it works, what my monthly payment would look like, and what debts would be included. She never made me feel embarrassed or judged, just supported.

Because of her, I finally feel like I have control over my finances again. She walked me through every step, answered all my questions, and made sure I fully understood what I was signing up for. I’m so relieved and grateful.

If you’re thinking about a consumer proposal or just don’t know where to start with your debt, talk to Camille. She’s patient, caring, and really knows what she’s doing. Highly recommend! 🙌 – Ali D – 2 days ago 

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– Shubham Batra

I had an exceptional experience with Sands & Associates during one of the most stressful periods of my life. I was overwhelmed, anxious, and unsure of where to turn, but the team treated me with genuine care and understanding from the very first moment.

Helen was absolutely amazing, patient, compassionate, and incredibly knowledgeable. She made everything easy to understand and helped me feel supported at every step. Hashan was also extremely helpful and kind, always quick to respond and guiding me with professionalism and empathy.

Thanks to both of them, I finally felt relief and clarity during a really difficult time. I’m truly grateful for their support and highly recommend Sands & Associates to anyone who needs trustworthy help and real compassion. – Shubham Batra – 2 days ago 

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– Emilee Stonehouse

I am very happy I got to work with Sand & Associates. It has been making life so much easy dealing with the debt I had. Plus working with Dana, and everyone there has been a delight to move things forward and easier. Thank you Sands & Associates! – Emilee Stonehouse – 3 days ago 

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Great and quick communication
Selina helped me with my case.
Was so stressed, quick responses from her helped me calm down.
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– Jenna Sullivan

Working with Carolyn was an absolute relief. From our very first conversation, she made what could have been a stressful situation feel manageable and even hopeful. She explained everything clearly, answered all my questions with patience and understanding, and made sure I felt supported every step of the way. Her professionalism and compassion made a huge difference, and I’m incredibly grateful for her help. I would highly recommend Carolyn and Sands & Associates to anyone who needs guidance and wants to feel truly cared for through the process. – Jenna Sullivan – 4 days ago 

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– Deep Brar

I can’t thank Sands & Associates enough, especially Jagdip Dial, for helping me through one of the most stressful times in my life. I was buried under debt and didn’t know where to turn, but Jagdip treated me with genuine kindness and respect from day one.

He walked me through every detail of the consumer proposal process, explained everything clearly, and never once made me feel judged. Because of his patience and guidance, I finally feel like I can breathe again and start rebuilding my life with confidence.

If you’re struggling with debt and feeling hopeless, please reach out to Jagdip and the team — they truly care, and they’ll help you find a way forward. – Deep Brar – 4 days ago 

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Should I Get Professional Debt Help?

If you feel like you might have a debt problem – you’re probably right! It’s best to connect with a Licensed Insolvency Trustee as early as possible, doing so can save you a lot of frustration (and money). Although we do help people facing urgent situations such as wage garnishments and legal action, we also offer professional advice, guidance – and debt-free plans – to people who feel stuck in a debt cycle, or may be facing debt warning signs such as these:

• Struggling to pay your debt off even though you make regular payments.
• Continually relying on your credit to meet costs of living and financial commitments.
• A debt repayment plan that’s going to take longer than five years.
• Feeling generally stressed, anxious or worried about your debt.

Every consumer should know that they have the right to connect directly with a local Licensed Insolvency Trustee in their province:

• You do not need a referral to speak with a Licensed Insolvency Trustee, and BC residents can book a free, confidential consultation with a local Sands & Associates Licensed Insolvency Trustee.
  • All our services are available in person, over the phone, or online.
• You are under no obligation to continue working together, and there is no impact to your credit history, and no hidden fees.

Get non-judgmental advice on dealing with debt – and solutions that work. Book your free confidential consultation with a caring local expert today.

The post What Can I Do to Pay Off my Debt? appeared first on Sands & Associates.