The Bank of Canada continues to increase interest rates in 2022, with no end in sight. Higher interest rates mean higher monthly payments on everything from your credit card to your car loan to your mortgage. For a Family on a budget, higher rates can bite into the bottom line and eat away at everything from savings for retirement, money for children’s activities or funds for vacations.
Here are three ways to shield yourself from rising interest rates.
Pay down debt
This is a no brainer, sure, but many Canadians continue to struggle with Albertans having some of the highest debt levels of any province in Canada. Debt may feel like it is a part of life for many of us, but higher interest means bigger portions of your payment is just going to interest instead of going to the principle amount owed.
If you have a lot of debt and no clear plan on how to pay it off, it’s time to talk to a credit union financial advisor and create a plan and an honest budget that you can stick to in order to pay down debt. Credit unions care about your financial success, not just the bottom line, so we will give you honest advice. Find your local credit union here.
Know your rates
If you are a customer with one of the big banks, do some research into the interest rates you’re paying. Some bank loans, for example, charge an interest rate of prime (the variable rate of interest declared by the bank) plus 3 or 4%. But many credit unions offer lower rates for the exact same product!
Another option is to talk to your financial advisor about refinancing products with high rates (like credit cards) to lower-rate options (such as a personal loan). If you decide to consolidate debt, make sure you work with your credit union financial advisor to ensure you’ve got a plan in place to avoid racking it up again.
You can also try to lock in floating rates (rates that aren’t fixed) to stop further increases from impacting your bottom line. Many credit unions offer products with fixed and variable rate options so you can pick which one is best for you.
Talk about finances with loved ones
One of the hardest things to do is to talk about money. Many Canadian families cite personal finances and debt as the biggest cause of stress in their household and money troubles can eat away at families and relationships, causing a whole host of other issues from lost sleep to anxiety to stress-related health problems.
But here’s the thing – not talking about it won’t make it go away. So sit down with your partner or parents or children and start talking. Review your current income and expenses and look at ways to consolidate and put more funds towards debt. Establish short-term and long-term financial goals and make a budget to help you get there (a budget you should review together, and with your financial advisor, at least once a year).
Visit your local credit union today for help creating a budget, developing a savings plan or reviewing the rates you pay to better protect yourself from rising interest rates.