07 Sep How to Prepare for an Interest Rate Hike
The best way to make it through an interest rate hike unscathed is to be ready for the worst case scenario. The problem with a rise in interest rates is that it can affect your existing loans, while also making it harder to acquire new loans, as the cost of borrowing money is directly impacted. For already struggling consumers who have a lot of debt, the prospect of an interest rate hike in 2021 is a daunting one, while those paying off loans towards high cost purchases like vehicles and properties will face even higher monthly repayments.
Making changes to your spending habits and adjusting your approach to paying off current debt can vastly improve your financial standing, should an interest rate be on the cards for 2021. If you are living paycheck to paycheck, now is the time to reconsider where your money is being spent each month. Don’t wait until it’s too late, the sooner your budget works for you, the less likely you are to be drastically affected by changes to an unstable interest rate system. As long as you are unable to accommodate a rise in interest rates, you can expect to fall behind on your important loan instalments. By missing repayment deadlines or skipping monthly payments, you risk becoming blacklisted, while your credit score can also be negatively affected.
To begin with, if you’re able to pay back your existing debts more quickly, consider doing so – especially with your higher interest loans. This not only frees up more money in your monthly budget, but also helps you to avoid a rise in the repayment amounts you are used to making, in the event of an interest rate hike. As a home owner, it is better to settle on a fixed rate mortgage rather than an ARM (adjustable rate mortgage), which makes it easier to manage rising interest rates. If you are over indebted, now is a good time to take charge of this through Debt Counselling (also known as Debt Review). At Debtco, we offer an effectual Debt Counselling service to those who are in over their head with debt owed, through a service which is approved by South Africa’s National Credit Regulator (NCR).
Our country is already facing dire economic circumstances, where the cost of food, fuel and municipal fees are increasing exponentially, causing plenty of stress. For average earning consumers, adjusting to more expensive but necessary monthly expenditures has already taken a toll. Knowing that a possible interest rate hike could also lie ahead only makes it more urgent to prepare in advance. Spend money wisely, avoid acquiring additional debt and wherever possible, pay back as much as possible to the debts already in your name.