Planning your finances when borrowing costs more

September 23, 2026

Sara Maginn Pacella

These are financially stressful times. A 2025 National Payroll Institute Survey revealed that more than half of workers admit to spending more than 15 minutes a day thinking about their finances while at work, with another six per cent spending more than an hour and a half stressing about their finances. Nearly one in four say this stress impacts their workplace performance. When people are already feeling financially stressed, other factors, such as increasing interest rates, can dramatically impact their financial stress. Here is what you need to know about interest rates and how you can apply them to your budget.

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How rising interest rates affect personal finances

Statistics Canada recently released data showing that what Canadian households owe has outpaced their income for the sixth straight quarter. CTV reports, “In other words, there was roughly $1.80 in credit market debt for every dollar of household disposable income.”

Understanding how interest rates impact your debts and repayment plans is critical to meeting your financial goals. Those with interest-tied debts that see rising interest rates can expect it to impact their budgets in the following ways:

Increased overall debt repayment and borrowing costs: For people with variable interest rates, higher interest rates make it more expensive to pay off your debts, with more of your money going toward interest and less of it going toward reducing the amount of the loan that is owed.
Reduced discretionary budget income: When more of your budget is tied up in debt, there is less money available in your lifestyle budget, which impacts your overall quality of life.
Increase in earnings on personal savings: Higher interest rates may negatively impact existing debts, but they benefit those with savings accounts, who will see higher returns on their savings.
Decrease in purchasing power: If you are looking to purchase a home, higher interest rates will reduce the borrowing power you have on the loans you qualify for, which may mean adjusting budgets for anyone house hunting.
Higher interest loan renewals: When interest rates increase, those who are due to renegotiate their loans can expect to be making larger payments on their mortgages and car loans and seeing longer timelines to pay back their debts.

” Understanding how interest rates impact your debts and repayment plans is critical to meeting your financial goals ”

How can you financially plan for fluctuating interest rates?

The Government of Canada offers many tips for dealing with rising interest rates, all focused on the goal of paying down your debt, since having less debt might let you pay it off faster. These suggestions offer actionable strategies for adjusting finances when rates increase.

A summary of their tips includes:

Reducing your overall expenses, freeing up more funds for debt repayment
Prioritizing paying off debts with the highest interest rates first
Consolidating high-interest loans to ones with lower interest rates
Increasing your income
Creating an emergency fund
Avoiding unnecessary debt or securing the maximum allowable mortgage or line of credit funds offered by lenders
Making timely payments to avoid penalties

Advice from those who paid off high-interest loans quickly

Advice from people who really have paid off their own debts can seem more concrete than abstract suggestions from the government or financial institutions. Jessica, who paid off a high-interest student loan in two years, says, “Stopping all extra spending makes you pay attention to what you miss and what you don’t.” Paying attention to the difference between need-to-haves and nice-to-haves can be an effective budgeting tool.

Being proactive with mortgage rates

Whether you are looking to secure a mortgage or renew one, hiring an expert can be a helpful way to get the best possible rate. Mortgage brokers have access to rates from multiple lenders and can save you time, stress and money by doing the rate comparison shopping for you.

Those facing an upcoming mortgage renewal when the current market reflects mortgage rates that are substantially higher or see a current rate significantly lower than the rate they are locked into for some time may benefit from considering a blended mortgage. A blended mortgage is when your mortgage provider combines your original signed mortgage rate with the current market rate to create a middle-ground “blended” interest rate. People also commonly use blended mortgage rates to tap into their home’s equity for a renovation, to pay off other higher-interest loans without applying for a separate line of credit or when moving to a new home.

A few years after my family signed our mortgage, and two years before we were scheduled for renewal, interest rates went down significantly. By applying for a blended rate, we were able to lower our bi-weekly mortgage payments, making more room in our discretionary budget when we needed it. We were also able to make balloon payments to pay off our mortgage faster thanks to a flexible loan agreement.

Removing the stigma and getting help

We have been marketed the idea that saving is a virtue and a sign of goodness, while debt is bad and irresponsible. This can make it very difficult to reach out for help and can lead people to put their heads in the sand rather than work toward progress on their debts and overall finances.

Himank Bhatia from Credit Canada speaks about how debt and interest rates go beyond headlines and can be very emotional. He explains that debt often doesn’t start with a shopping spree or irresponsible spending; instead it begins with one or more unexpected expenses, citing examples of car repair, dental bills and vet expenses. He says when people seek out help, they “have been holding it together for a long time. They’re incredibly resilient, but they’re tired of choosing between a grocery bill and a credit card payment.”

If you are experiencing financial stress, whether it’s related to rising interest rates or anything else, don’t be afraid to reach out for help. You aren’t alone. There are many credit counselling organizations that offer free consultations to help you figure out your options and get back on track.

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