The federal reserve has raised the baseline interest rate from 0% to 3.75% in the last several months, and the rate is projected to continue to increase. This has an incredible effect on the how much it costs to service debt. Everything from mortgage payments to car payments to credit cards to personal loans will become more expensive to service or acquire. This will make it easier to accrue large amounts of debt and harder to pay the debt that you already have.
Hopefully, if you already have a mortgage, the payment has a fixed interest rate. Variable interest rate mortgages stand to increase greatly in the coming months and years. Fortunately, there are not as many variable interest rate mortgages as there once were, especially before the financial crash of 2008 and 2009. However, if you have a variable interest rate loan, you should watch your mortgage statement closely in the coming months as the payment could go up significantly. Also, if you are seeking a mortgage or any loan in the near future, you should absolutely avoid variable interest rates.
Consolidation loans will also get more expensive. This makes it harder to consolidate a collection of credit card debt under one loan. Chapter 13 bankruptcy may be a good alternative option as creditors are always repaid at 0% interest over the course of the bankruptcy plan. Therefore, increasing interest rates do not make a chapter 13 bankruptcy repayment plan more expensive. This is an important consideration because interest is often the hardest part to get under control with unsecured debt. Chapter 13 bankruptcy locks in your current amount and actually gives you a target to pay off. Your balances will actually go down when you stop having to pay high (and getting higher) interest rates.
There is no real good advice for how to deal with higher interest rates. They affect everyone and make everything more expensive. The idea is to decrease the attractiveness of taking out loans and therefore slowing down the economy. To whatever extent you can avoid taking out loans, obviously you should do so. But unfortunately that is not always an option in life. If you need to buy a home you can’t just wait until interest rates drop. One positive side effect of higher interest rates when buying a home is that it tends to decrease the actual cost of the home, sometimes greatly. If you need to buy a home now, the best case scenario would be to pay the higher interest rates in the next several years and then refinance to a lower rate when interest rates drop.
Higher interest rates are a problem for almost everyone. If you have been considering a loan consolidation but now find it less affordable, contact us at 412-414-9366 to set up a free consultation. Chapter 13 bankruptcy may be an option to step outside of the pain of higher interest rates.