Quebecers' debt concerns mount amidst anticipated interest rate hikes

Tashi Farmilo

A recent study paints a worrying picture for Quebecers as they grapple with the prospects of escalating interest rates. The MNP Consumer Debt Index, conducted by Ipsos on behalf of MNP LTD, indicates that the province's residents are increasingly anxious about their ability to manage rising debt.

According to the report, there has been a notable 11-point jump from the previous quarter in those who foresee difficulties in handling an extra $130 in interest payments on their existing debt, with the figure now standing at 34%. Additionally, the study reveals a seven-point increase to 26% in respondents who believe their capacity to withstand an interest rate rise of one percentage point has diminished.

With interest rates transitioning from near-zero levels to their highest in over two decades, Quebecers' concerns are intensifying. The anxiety is particularly pronounced given the imminent interest rate announcement by the Bank of Canada.

Frédéric Lachance, a Licensed Insolvency Trustee with MNP LTD, weighed in on the findings. He observed, "The rising debt carrying costs combined with escalating living expenses have put considerable strain on household budgets. Given these circumstances, the bleak financial outlook in Quebec is understandable. For an increasing number of individuals, making ends meet has evolved into a formidable challenge."

Furthermore, the study divulged a rise in the proportion of Quebecers who perceive their present debt situation as significantly deteriorating compared to a year ago, increasing by three points to 16%. In a similar vein, those expressing concern about their debt situation as being worse than it was five years ago have surged by six points to 22%. The forward-looking sentiment isn't optimistic either, with 18% anticipating their debt scenario to deteriorate a year from now, marking an increase of five points. Looking five years ahead, 17% predict a worsening debt situation, also up by five points.

Lachance added that while current challenges are daunting, some financial pressures have been alleviated due to a robust job market. However, he warned of potential economic slowdowns that could lead to heightened unemployment rates as higher interest rates take effect. This sentiment is mirrored in the report, with an increasing number of respondents, now at 42%, voicing concerns about potential job losses within their households, a three-point increase from the previous quarter.

Highlighting the dangers of relying on credit, especially during uncertain financial times, Lachance explained, "Households may resort to credit to bridge financial gaps, hoping to clear it once circumstances improve. This could initiate a vicious cycle where one relies on credit for one bill after another, eventually leading to missed payments and a spiral into a high-interest debt trap."

To combat this, Lachance emphasizes the importance of proactive measures. He recommends individuals anticipating financial difficulties to engage directly with their lenders, potentially setting up a payment plan, and to consult a Licensed Insolvency Trustee for professional advice.