Interest Rates are Rising
Interest rates are rising, which is typically good news for investors and people with savings accounts. However, a rising interest rate can also negatively affect those who borrow money or rely on debt to finance purchases.
If you have debt, whether in credit card payments or student loans, you may be concerned about how rising interest rates could impact your financial situation. Here’s what you need to know about how a rise in interest rates could affect you:
- Your monthly payments could increase. As interest rates go up, so do the minimum payments required by each month on your debts (assuming that your creditors haven’t changed any other terms of your agreement). If you have multiple debts, this could mean a more significant portion of your monthly budget is dedicated to paying off debt.
- Your credit card interest rates may increase. If you have a variable rate credit card subject to fluctuations depending on the market, you will likely see an increase in interest rates if your lender decides to raise their rates. This can result in increased payments and higher overall costs due to the compounding effect of interest on your existing balance.
- You may lose access to specific programs or benefits from your lender/issuer. Lenders and issuers are under no obligation to keep offering product promotions or special offers as long as conditions permit them to do so, even if these actions were previously beneficial to you as a borrower. For example, if your lender offers a 0% interest rate for the first year on new purchases but then raises rates after that time period, you may no longer be able to take advantage of that same offer in the future.
- You may have difficulty qualifying for new loans or lines of credit. While a rising interest rate alone won’t necessarily impact your ability to qualify for new financing, it can affect how much you can borrow and at what terms. This is because lenders use debt-to-income ratios (DTI) as one factor in determining whether or not to approve a loan or extend credit. If your monthly payments go up due to higher interest rates, this could increase your DTI ratio and make it more challenging to qualify for new financing.
- You may need to adjust your budget. If you’re already struggling to make ends meet each month, a rise in interest rates could push you over the edge. In this case, you may need to sit down and re-evaluate your budget to see where you can cut back to make room for the higher payments required by your debts.
If you’re worried about how rising interest rates might impact your financial situation, it’s essential to stay informed and take steps to protect yourself. Keep an eye on interest rates, and pay attention to any changes in terms from your creditors or lenders. Taking these precautions can help ensure that you’re prepared for anything that might come your way. We’re always here to help you understand your financial position. Visit us online, or better yet, in person. We would love to see you.