The Bank Of England has once again increased interest rates in May 2023, the 12th consecutive rise since December 2021, increasing them to 4.5%. With interest rates before these rises set at almost 0% these increases are having a devastating effect on many people’s personal finances.
The rise is likely to affect over 2 million people on variable rate mortgages as well as those on tracker rates which will also see an increase in monthly payments.
Tenants are also not immune to these rises as Landlords may look to increase rents where possible to cover the increased costs to themselves. This is all in addition to the well documented cost of living increases we have seen over the last two years which most people are suffering from.
Furthermore, with inflation set to remain stubbornly high for the next few months, it is likely there will be further interest rises over the summer. Eyes will also be on the US and any steps they take with regards to interest rates as it is likely the UK will follow suit in order to protect the value of the Pound.
So what do Interest Rate Rises Mean to You and Your Personal Debt?
When interest rates rise, it can have an impact on personal debt in several ways and here are a few examples:
1. Higher interest rates on loans: If you have borrowed money at a variable interest rate, an increase in interest rates will mean that you will have to pay more in interest on your loans. This could make it more difficult to pay off your debt, particularly if you have a large amount of debt or if you are already struggling to make your payments.
2. Increased credit card interest rates: Whilst interest rates on credit cards are generally high, they are often also variable. Therefore, an increase in interest rates could lead to higher interest charges on your credit card balances. This could make it harder to pay off your credit card debt, particularly if you are only making minimum payments each month.
3. Impact on mortgage payments: If you have a variable rate mortgage, (or tracker mortgage) an increase in interest rates could result in higher monthly payments. This could put a strain on your budget and make it more difficult to pay off other debts. Also, with fixed rate mortgages that may come to an end over the coming months, this can mean a massive increase in payments as the full rise over the passed 12 plus months will be implemented. Rents could also increase as landlords look to offset some of the costs.
4. Impact on savings: Higher interest rates can make it more attractive to save money, which could help you pay down your debt faster. However, if you have a lot of debt, it may be more important to focus on paying off your debt before you start saving.
Overall, interest rate increases can make it more difficult to manage personal debt, particularly if you have a lot of debt or if you are already struggling to make your payments. It's important to review your budget and debt repayment plan regularly to ensure that you are on track to pay off your debts and manage any changes in interest rates.
If You Are Struggling With Debt
If you find yourself struggling to manage or even afford the basics such as food and energy it is important to speak to a professional to see what is the best option for you. Whilst some debt plans can affect your credit score and make it difficult to get credit in the future, defaulting on loans and building up arrears can have a worse affect and can end in bankruptcy.
Here at X-debt we hope to deal with your personal debt before it goes too far. Whilst we only deal in
Individual Voluntary Arrangements or IVA's, we will won’t pressure you in to that solution and will always try to signpost you to the debt solution which is most appropriate for your situation. Whichever way you go, it is important the you are comfortable with your decision and don’t feel pressurised.
Contact Us first or try our
IVA Calculator which should give an initial indication of whether an IVA is appropriate for you.
