The economy is improving. In fact, we’ve just seen a hike in the nation’s interest rates – one that might be the first of many over the next few years.
For those of us who are savers, this increase is a blessing. There will be higher interest rates on various investment vehicles, such as GICs.
For others of us who are behind on our debts, these rising interest rates can have a serious and significant impact on our already struggling households.
But all is not lost. There is something you can do to prepare yourself.
Here are three ways the interest rate increase can affect your budget, and tips on what you can do about it.
1. You’ll be paying more for your home or car.
If you have a mortgage, line of credit, or other type of loan with a variable interest rate – or you need to renew a fixed interest rate mortgage or loan, you will inevitably be paying more for your home or car.
What can you do?
- Stay away from adjustable rate mortgages (ARMs). These are loans whose interest rates vary to reflect (currently rising) market conditions. Not only will you have a higher monthly payment, but you won’t be able to budget properly for the future.
- If you’re planning on buying a home or car, purchase sooner rather than later to avoid paying more as interest rates gradually increase.
- If you don’t need a car or home right away, save for a larger down payment so you don’t have to borrow as much while interest rates are high.
2. It may take you longer to pay off your credit card.
If you have any credit cards with variable interest rates, these will automatically increase. This means any balance you carry will have you paying more, and it’ll likely take you a longer time to pay it off.
What can you do?
- Pay your balance as soon as you can.
- Pay off debt with the highest interest rate first, so you pay less towards interest.
- Try to limit what you spend. While this is easier said than done, before you buy that shirt or latest gadget or whatever-item-you-think-you-need, consider that it will cost a lot more than its current price tag, thanks to the higher interest rate.
- Now more than ever a budget is essential. If you don’t already have one, put a reasonable one in place – and make sure it’s one that you can stick to. This way, you can put more of your income towards debt repayment while interest rates are high.
- If you already carry a balance, consider a fixed interest rate card or a balance transfer. Take care to read the fine print about the terms of the latter, since it may come with a fee.
- Consider consolidating those of your debts with high interest rates.
3. You can make more – by saving more.
If you have your debt under control, no lingering credit card balances, and a healthy emergency fund in place (for life’s inevitable twists and turns), now is a great time to save. Interest rates are higher on longer-term investments than they have been the past few years, so take advantage of this opportunity.
Contact a trustee today.
If you’re worried about what the hike in interest rates means for you and your family, or you’re struggling financially, contact a trustee today. At your initial, free consultation, we’ll review your financial situation and discuss all options available to you, as well as their pros and cons. Let qualified, seasoned, government-regulated professionals guide you in your decision. Take your first step toward the financial life you deserve, and contact us today.