Published on: 21 Aug 2017
With media speculation of an interest rate rise likely sometime early next year, it’s time to take action now. If you have a mortgage, credit card debts or loans (which most of us have), even the smallest rate increase could be quite painful. The last thing you want on top of your Christmas expenses is a hike to your mortgage or other loans. With a little preparation now you may be able to get through the tight squeeze.
Get your debts onto the lowest possible rate
Check the interest rate you’re paying on your debts and find out if there’s a cheaper option you can move to, for example:
- Overdraft – if you have an unauthorised overdraft you’re like to be paying charges. Even if you have an authorised overdraft, take care not to go over your agreed limit, as you’ ll also incur charges. The key, according to MoneySavingExpert, is to cut the rate, repay faster and regularly check your balance to avoid penalties. He also suggests the following four ways to cut overdraft costs to 0%. Another way is to transfer cash from a 0% credit card to your bank account to clear your overdraft or maybe your bank (personal) loan. This is a complex technique, but very useful if you stick to the seven golden rules.
- Credit cards - paying the minimum or less than the full amount each month means your outstanding balance is not reducing very much. Add to this a pretty high rate of interest, and you could end up with spiralling debts. A 0% balance transfer can help you cut the cost of existing borrowing. It’s where you get a 0% credit card to pay off debts on old cards. But remember you still have to pay off the outstanding debt, it just may be a bit more manageable.
Fix your mortgage
If you have a variable rate mortgage this is likely to increase if rates go up. One way round it is to move to a fixed rate mortgage as soon as you can. Check when your current deal ends and whether there’s a penalty if you change it before then.
Interest rates for fixed mortgage tend to be higher but at least you know that they won’t increase again within the term you agree to. You’ll also know exactly what you’ll pay, meaning you can budget around it. You can compare fixed rate and other mortgages on the MoneySavingExpert website. Also, take a look at Should you remortgage now?
Overpay while you can
If you are comfortably managing your current debt, you could try reducing it more quickly by paying off more each month. But check that your loan or mortgage allows for this without penalty.
If you haven’t looked at your household expenses for a while, try our Budget planner to see where your money is going and whether there are things you could cut back on. This will give you more money to pay off your debts.
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