May 16, 2018

What to do about your debt and mortgage after the interest rate hike

Banks and consumers in Canada are having to adjust to the increase in the benchmark lending rates. While the increase does also boost the rate paid out to savings accounts, many Canadians are still carrying high levels of debt. Before you do anything as a result of these changes, it’s important to look at what types of debt you have. Any investment that contributes to progress towards your future, like a student loan or mortgage, is considered good. Anything that doesn’t provide any future returns, like credit card debt, lines of credit or other higher interest debt, is bad.

Key Takeaways:

  • Pay off any bad debt with a higher interest rate first, but also consider what debt you have that is tax deductible.
  • As much as paying off debt is important, debt that has tax deductibility may be better to keep. For instance, if you are not able to pay off all your debt by borrowing from a TFSA, then you can at least use the deductibility from it to save on taxes and possibly create an income to pay off the high-interest or bad debt.
  • Consider switching from a variable mortgage rate to a fixed mortgage rate, especially if you believe that interest rates will continue to increase.

“It’s important to be more careful with spending and what kind of debt we are taking on and how and what the plan for repaying it is.”

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