The Canadian economy proved to be one of the most resilient in the world, getting through the Economic Crisis of 2008 with less damaging consequences than almost all other industrialized nations. But once Canadian exports began to suffer, the crisis found its way into Canadian households including those in Lethbridge. Bankruptcy filings went up 28% in 2009.
Much to the relief of Canadians everywhere, bankruptcy filings are on the decline, dropping 18% in 2010. With an economic recovery underway, including a rising price of oil, will the rate of Lethbridge bankruptcy filings continue to decline?
Predicting the future is difficult. But our extensive experience with bankruptcy filers over many years tells us the answer lies in part on household debt levels. Simply put, households that don’t owe a lot of money to a lot of different creditors are in a better position to withstand a personal economic crisis involving reduced income.
Household debt levels in Canada reached all time highs in late 2010 but now it seems Canadians may have figured out how vulnerable excessive debt makes them, and household debt is beginning to go down.
If you have high debt levels but believe you can continue to manage the debt you owe, you may want to rethink that. Why? Interest rates.
In response to the Economic Crisis of 2008, interest rates were slashed to promote economic growth. As a result of these drastically reduced rates, it became easier for many Canadians to pile on more debt, and they did.
It doesn’t require much economic expertise to look at this picture and predict that interest rates will rise. They have nowhere to go but up. And when interest rates go up, so will your monthly debt repayments.
If you have an existing home mortgage, you can expect an interest rate increase in your next mortgage renewal. The rise is likely to be gradual but in the volatile economic times in which we find ourselves, anything can happen. Experts claim a 2% increase in a monthly mortgage payment will force a 10% reduction in overall expenditures to meet the higher mortgage payment.
Can your budget withstand that kind of cut? We think the key to protecting yourself from future economic shocks is lowering your household debt, starting right now. Lower debt acts as a shock absorber against future financial trouble.
While interest rates will surely go up, Lethbridge bankruptcy rates may continue to decline, if Lethbridge residents learn to reduce their debt. Achieving that goal requires strict personal budgeting as well as learning to manage credit properly. You can get professional help with both from reputable credit counselors or licensed bankruptcy trustees in Lethbridge.
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