Interest rate hike could be 'tipping point' for debt-laden Albertans

Debt-laden Albertans could be at their "tipping point" thanks to the Bank of Canada's decision to raise its benchmark interest rate to 1.5 per cent, according to an insolvency expert.

'Albertans are still the people that have the highest debt levels in the country'

Albertans have among the highest debt levels in Canada.

Debt-laden Albertans could be at their "tipping point" thanks to Bank of Canada's decision to raise its benchmark interest rate to 1.5 per cent, according to an insolvency expert.

The 0.25 percentage-point hike is the fourth time in the past year the central bank has decided to raise rates.

While it shouldn't be a surprise, said MNP insolvency trustee Donna Carson, it might be the push some people need to take a hard look at their finances.

"I think in general in Alberta for some people it might be the tipping point, if you will," she said. "Another interest rate hike for some people might be the point in time where they say, 'OK, we need to sit down and figure this out.'"

Carson pointed to a survey released by MNP earlier this week that suggested nearly half of Albertans would be in financial trouble if interest rates increased. 

Four in 10 Albertans in the survey felt that they were $200 or less away from financial insolvency at the end of each month.

"Albertans are still the people that have the highest debt levels in the country," Carson said.

Calgarians are particularly indebted.

A 2017 report from credit reporting agency TransUnion found that Calgarians had the highest average consumer, non-mortgage debt levels of any major metropolitan area in the country, at $28,184. Edmonton came in third, behind Vancouver, at $24,354. 

Three of the biggest Canadian banks raised rates in response, with Royal Bank of Canada hiking its prime rate to 3.7 per cent starting Thursday, up 25 points from 3.45 per cent previously. TD and BMO quickly followed suit, and others are expected to do the same in short order.

'It will have an impact'

"I wouldn't say it wouldn't be immaterial. It will have an impact," said Martin Pelletier, chief investment officer for TriVest Wealth. 

"If you have a mortgage or a loan, you're going to see, depending on the term or the structure, you're gonna see it bump up your debt servicing costs."

Carson said the volume of insolvencies her company sees is up from the same time last year. 

"There's still quite a few people out there trying to figure out how to deal with their debt."

She said the first thing anyone trying to tackle their financial situation should do is put in on paper. 


With files from Pete Evans