With the very real possibility of a rate hike in the near future, for many in the lending business, particular attention is going need to be directed towards due diligence and, for some clients, on the business of debt management. 

According to a new report released from BMO Economics, “interest rates are likely to increase in October and again in December, before pausing next summer. This will leave the Bank of Canada’s benchmark rate at 2.5 per cent by the end of 2012, meaning Canadians would benefit from looking for ways to reduce debt before rates go up. The latest numbers show consumers have started to do that, with Canadians’ debt growth slowing.”

So then, there is no time like the present to prepare for the future, and the same can certainly be said for debts and borrowing.

In the same report, BMO suggested that lenders take a proactive approach with their clients in tackling strategies that consider ways in which to make debts manageable as the cost of borrowing is about to rise.

With an eye to keeping affordability in view, they recommend several steps to advise clients on how to keep debt under control:

Have a budget and stick to it: The best way to manage debt is to identify spending patterns and determine what people can afford.  Also, budget setting must take into account possible rises in interest rates, and include things like an emergency cushion-so that the bounds of affordability are not stretched to the outside limits. Beyond setting out a budgetary plan, borrowers must live it daily. Now is a good time to test drive a budget, given the still low interest rate environment.  It is kind of like a dress rehearsal for the real thing.

Eliminate or curb credit card debt. Some of the real problems with debt management lie in high interest credit card debt- that is often easier to qualify for, and support many impulse purchases that threaten budgetary plans.

Really look at wants vs. needs.  With an interest rate hike on the horizon, it makes good sense to really examine want vs. need, and to make these hard decisions now. Obviously, needs come first- and wants are items that can be purchased over time, when the budget allows.

Become debt free as soon as is reasonably possible. Of course, people would love to immediately be debt free- but debt management takes a sustained effort over a period of time. Start with higher interest rate debt, and then work on mortgage debt by taking advantage of things like shorter amortization and prepayment options.