Over-exuberant Christmas shoppers only have months to get
control of their overspending before higher interest rates risk further
complicating their lives, credit counselling experts warn.
With Canadians swimming in debt, forecasts of higher
interest rates midway through 2010 could push more people over the edge by
hampering their ability to pay off expenses.
“It's a huge concern,” says Laurie Campbell, executive
director of the non-profit counselling service Credit Canada.
Those most at risk are homeowners who must renegotiate their
mortgages. Higher rates would increase monthly payments, leaving less to pay
other debt.
Spending by Canadian households averaged $71,360 last year,
2 per cent more than in 2007, with shelter representing about 20 per cent of
the load.
The Bank of Canada has repeatedly warned of late that record
household debt is the biggest risk facing the country's financial system. Bank
Governor Mark Carney said that up to 10 per cent of households could face
difficulties in meeting monthly payments when interest rates rise to normal
levels.
However, an estimated 40 per cent of mortgage holders with
high debt payments could increase their flexibility by suspending accelerated
pay-downs on principal.
Since it's too late to avoid the commercialization of
Christmas, credit counsellors suggest people look at strategies for dealing
with their spending spree as soon as the holidays wind up.
Recommendations include tackling high-interest credit card
debt first — obtain a line of credit or consolidation loan if possible, stick
to a spending budget and try to amass an emergency fund.
Whatever you do, don't rack up more credit card charges as
you develop a plan of action to tackle debt.
Ms. Campbell said there's no need to have more than one or
two charge cards. Paring the number of cards over time will also limit the
ability to make foolish decisions.
Despite increased restrictions, she expects that more
Canadians will turn to bankruptcy to address their financial problems in 2010.
Among them will be high-income earners who have begun to seek credit
counselling in greater numbers.
“I think it's really important for people to understand not
to panic,” Ms. Campbell said, adding that help from counsellors is available.
