Dale Jackson

Personal Finance Columnist, Payback Time

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Washington, D.C. may seem like a long way away, but the next interest rate hike by the U.S. Federal Reserve will eventually hit home for the average Canadian.

Borrowing rates are rising. Benchmark interest rates from the central banks may increase slowly, but the prospect of massive government spending by the new U.S. administration already has bond yields heading up.

That means the debt burden for average Canadian households will rise even without them taking on more debt. The latest figures from Statistics Canada shows we borrow $1.67 for every dollar of income we bring in each year. When the benchmark rate was between 5 per cent and 10 per cent in the 1990s our debt was 90 cents for every dollar we brought in. In other words; we owed less than we brought in.

Here are three things to think about in this rising rate environment:

• It’s time to get serious about debt. Consolidate credit card and other high interest debt into a lower-interest consumer loan or line of credit. If you own a home, secured lines of credit usually have the best rates -- but they will be rising as well. 
• If you are in a variable-rate mortgage, there likely won’t be a better time to lock into a fixed-rate mortgage. Five-year fixed-rate mortgages are currently going for two per cent to 2.5 per cent. In the 1990s they ranged from eight per cent to 11 per cent.
• Keep an eye on your fixed income portfolio. If you allocate a portion of your nest-egg to fixed income to balance risk from equities, it should be in short durations to take advantage of higher bond yields when they go up. Talk to your investment advisor about a good fixed income strategy.