The cost of living is on the rise and everyone is talking about one thing, inflation. With inflation at an all-time high, Crowe MacKay & Company’s insolvency experts share what it is, how you may be impacted, and provide solutions for those facing financial difficulties. If you require immediate assistance, our team is ready to help navigate you toward financial freedom, book a free initial consultation today.
What causes inflation?
Inflation happens when demand outweighs supply, which results in costs rising. For example, in Canada, the cost of groceries alone have increased by 10.28% as of September 2022. To counteract inflation, the Bank of Canada has been raising the prime interest rate.
What is the prime interest rate?
A prime rate or prime lending rate is an interest rate used by banks when lending to customers with good credit. Some variable interest rates may be expressed as a percentage above or below prime rate. You can expect the prime rate to impact the interest payments you make on your:
- Mortgage
- Line of credit
- Car loan
- Student loan
The prime rate is currently 5.95%, which is 3.5% higher than it was a year ago (2.45%, November 2021) and it is expected to rise again.*
Interest Payment Example
To put this into relatable terms, let us look at an example. Below is how much interest you would pay each month on a $10,000 line of credit from November 2021 to October 2022. The borrowing rate is the prime rate plus any additional percentage determined by the credit lender**. In this example, the lender has added an additional 1% to the monthly interest payments.
** Loans can be the prime rate plus (or minus) any percentage determined by the lender. The lender will take into account conditions of the market, individual credit score, amount borrowed and assets, if any, available to be provided to the lender as security for its loan.
| Date | Prime Rate (P) | Borrowing Rate (P+1%) | Monthly Interest Payment |
| November 1, 2021 | 2.45% | 3.45% | $28.75 |
| March 2, 2022 | 2.70% | 3.70% | $30.83 |
| April 13, 2022 | 3.20% | 4.20% | $35.00 |
| June 1, 2022 | 3.70% | 4.70% | $39.17 |
| July 13, 2022 | 4.70% | 5.70% | $47.50 |
| September 6, 2022 | 5.45% | 6.45% | $53.75 |
| October 25, 2022 | 5.95% | 6.95% | $57.92 |
In short, in the past year, the monthly interest payments have more than doubled. This means that less of your payment is going toward the principal balance and thus extending the time you will be carrying this debt.
Struggling or unable to meet your financial obligations?
Inflation affects us all, whether we are financially secure or not. As said by Bank of Canada Governor Tiff Macklem, “high inflation feeds frustration and creates a sense of helplessness,” and if you are already struggling with debt this may be your breaking point – but you do have options.
Instead of feeling overwhelmed and frustrated, talk to a Crowe MacKay & Company advisor to help you take control of your finances. Many people are surprised to learn that there are several options for reducing debt and to avoid filing for bankruptcy, such as:
- debt consolidation,
- debt management programs, and
- Consumer Proposals
Every situation is unique, so we recommend connecting with a Licensed Insolvency Trustee to help review all your options to ensure you have the best financial future possible.
Require Assistance?
At Crowe MacKay & Company, we have over 60 years of experience and offer free initial consultations. If you have any questions regarding the information above, contact our office today and start your debt relief journey.
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This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice.
If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.
*This interest rate is current as of 11/22/2022. For the most up-to-date Canadian interest rate visit the Bank of Canada’s website.
