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Category: Interest Rates

What to do if Interest Rates Rise?

Many people do worry about what they may do if the Bank of England interest rates rise. Anyone with a loan which has a variable interest rate will expect that the amount of interest that they are paying on their loans to go up. It is realistic to think this as well because most lenders will put their rates in this situation. There are things that you can do to make sure that you can cope in this situation.

  • See if you can afford it – you need to start by working out whether you can afford this rate rise. Do some calculations and you will be able to work out if you will have enough money available. If you are already struggling to afford the cost of your loan, then it is unlikely that you will be able to easily afford an increase. If you can afford it now, it is still important to work out how much of an increase you can afford. In order to do that you will need to think about how much money you get in each month and how much you spend on essentials and whether that leaves you enough to cover the increase in the cost of your loans as well as other things that you like to buy. If it does not then you will need to come up with a plan on how you can afford it.
  • Switch to a cheaper lender – changing to a cheaper lender will be a way to keep the price of the loan down. It may be that you will be charged for swapping from your current lender or that you will be charged an admin fee when you start with a new lender. It is therefore well worth finding this out before you make any plans to swap. This is because you will need to incorporate these charges when you do your calculations to work out whether you will benefit from switching to the new lender. It may be complex to calculate but it is worth the effort as if you switch and find out that it is more expensive, then you will be annoyed as well as being worse off.
  • Cut spending elsewhere – It may be that you will need to think of some ways to manage your money better so that you can afford these increased payments. One approach is to reduce your spending elsewhere. This can be quite difficult, but there are some things that you can try which might make less of a difference to your lifestyle. For example, if you compare prices of your insurers and utility companies, you could swap to cheaper ones. If you do this will all of them then you may be able to reduce your payments enough to cover the cost of the higher interest. This may not be enough or you may already be paying a very low amount. If this is the case then you will need to think or other ways to cut back. It may be that you can compare prices on other things that you buy and cut back there. Perhaps shop in cheaper shops as well. It is easy to be fooled though as sometimes a shop you feel would be cheap may not be the cheapest so if you have time, make sure that you compare the prices carefully. You may also not want to forgo quality just so that you can pay less for something. However, you also do not want to pay more than necessary. You may also need to adjust what you are buying so that you are buying cheaper things. For example, rather than eating out, if you cook yourself then it will be cheaper. You may even just need to stop buying somethings for a while. Things that you do not need, such as mp3’s, video games, new clothes, holidays and things like that may have t be reduced or eliminated. This can be hard but if you set a budget and stick to it, you might be able to allocate yourself some money for luxury items.
  • Earn more – if you feel that you cannot cut down any more or that you would rather not, then you will need to earn more money. This can be tricky for some people, but there are many options which you could consider. If you own your home, then you might be able to rent parts of it out such as a bedroom, garage, attic space or even your driveway. You might be able to pick up some freelance work or some temporary work. You may even be able to do an evening or weekend job. There are also opportunities to find work online but you do have to be careful and make sure it is with a company that you trust.