Sunday, June 24, 2012

How To Deal With Rising Interest Rates

For the past few years, interest rates have been quite low, causing many people to borrow large amounts of money for a variety of different expenses. Now these interest rates are about to rise, and they will have a large effect on the personal finances of many borrowers. How do these interest rates affect you? What can you do to prepare for rising interest rates? In this article I will answer both of these questions.

When Do Interest Rates Rise?

When the Federal Bank increases the interest rates, the cost of mortgages, loans, and credit cards are also increased. Because the average American household owes at least ,000 in credit card debt, they will be heavily effected the rising interest rates. If you are having a difficult time making your payments every month or are only making the minimum payments, it can be very difficult to pay down the principle when the interest continues to increase. In a situation like this it could take many years to pay off a loan.

Don't Be Depressed

Even worse, if the economy suffers a major depression similar to what occured in 1929, banks and loan companies may begin calling in debts in order reduce their losses. This means that customers will be forced to pay back everything they owe up front, and if they can't their homes, cars, or other valuables could be taken from them. While this may sound extreme, history has a way of repeating itself. It is important to make sure you do everything you can to protect yourself and reduce the amount of debt you owe.

Try To Pay Your Debt Early

One thing you will want to do is start paying more than just the minimum payments. As the interest rates continue to rise, making only the minimum payments will do nothing to reduce your debt. If you don't have enough money to make more than just the minimum payments, look for ways to cut back on your expenses so that you will have more money left over to pay on your loans. You will want to reduce your spending and set aside a budget that will allow you to make larger payments towards the principle rather than just the interest.

Get On A lower Interest Rate

Don't listen to credit card companies that advertise credit cards at a fixed rate. By law, credit card companies have to give you a notice before increase the interest rate on the credit cards, and very few loans are exempt from the interest rates that are increased by the Federal Bank. It is best to transfer your balances from high interest credit cards to those that have a much lower interest rate. Look for companies that offer 0% interest rates for a set period of time. Home equity loans or lines of credit are tools that can also be used to consolidate and pay of your debts.

Consider A Cheaper Mortgage

If you have a mortgage that features an adjustable interest rate, consider switching to a fixed rate before interest rates begin to rise. This could keep you from getting into a situation where you could lose your home. If you are looking to buy a house, it is important to remember that the cost of houses will greatly increase once the interest rates start to rise. This means you will want to find a house before this happens so that you will avoid paying inflated prices.

Lease Or Buy a Car

If you are thinking of a getting a car, it may be a good idea to buy used instead of leasing a car from a dealership. It doesn't make much sense to get a car loan at a time when interest rates are about to rise. Buying a used car has many advantages, but you will want to do your research to make sure you get a good deal.

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