7 Tips to Reduce Rising Interest Rates' Impact on Your Finances

In short

Review your budget : To avoid debt, make sure that your expenses don’t exceed your income.
Reduce your expenses : Make cuts everywhere you can.
Contact your creditors : Try to negotiate down or see if you can pay over a longer term.
Prioritize your debt payments : There are two very effective methods for paying them off faster: the avalanche and snowball methods.
Pay off some debts early to reduce the accrued interest.
Increase your income with side hustles.
Build up an emergency fund to deal with unexpected events.

And don’t hesitate to ask one of our insolvency trustees!

In recent months, prices have gone up for everything (especially gas and groceries). What’s more, rising interest rates can tip a budget into the red and put you even further into debt. Interest rates affect many aspects of personal finances, such as mortgages, car loans, credit cards and lines of credit. If you’ve taken out a variable-rate mortgage, rising interest rates could quickly take their toll.

For example, if your $400,000 mortgage loan were previously at 2%, at the current rate of 6%, your monthly payments would rise from $1,695 to $2,560. That’s a steep increase! What’s more, you’d pay much more in interest than in principal, and it would take much longer to pay off your loan.

How can you mitigate the effects of rising interest rates?

If you can’t make your monthly payments because they’ve become too burdensome, you’ll have to cut back or take on new debt to meet your financial obligations.

Worse still, with credit cards and lines of credit, if you don’t make your minimum monthly payments by the due date, your financial institution may raise your interest rate.

It’s important to know what measures you can take to reduce the impact of rising interest rates. Here are a few :

1. Review your budget

The cost of living is skyrocketing. That’s why you need to regularly adapt your budget to the current situation to make sure that your expenses don’t exceed your income. Otherwise, you’ll accumulate new debts which you want to avoid at all costs. Our online budget will help you make a budget.

2. Reduce your expenses

Take your bike or public transit instead of your car
Check flyers
Cancel some subscriptions
Postpone expensive projects

Our website offers more advice on how to prepare for a recession and deal with inflation.

3. Contact your creditors

Contact your lenders to find out by how much your payments have increased so you can readjust. Try to negotiate down or see if you can pay over a longer term (but bear in mind that a longer amortization period on your loan means you’ll pay more interest).

4. Prioritize your debt payments

If you have debts, there are two very effective methods for paying them off faster: the avalanche and snowball methods. Whereas the avalanche method pays off the accounts with the lowest balances first, the snowball method pays off the accounts with the highest interest rates first. To learn more, read our tips on both methods here.

5. Pay off some debts early

If you can, pay off some debts early to reduce the accrued interest. If you can eliminate or at least reduce your credit card debt, it will make a big difference in the interest you pay.

6. Increase your income

If your schedule allows, find a few extra hours of work to increase your income. Even a few hours can be good for your budget.

7. Build up an emergency fund

By setting aside a small sum, you’ll be able to deal with unexpected events and make higher monthly loan instalments.

Caution : What not to do!

While these measures can help you deal with rising interest rates, there are other measures that you should steer clear of :

Many people are in dire financial straits right now. You have nothing to be ashamed of. However, you do need to act quickly.

If you can’t see the light at the end of your debt tunnel, don’t hesitate to ask one of our insolvency trustees for help. They’ll help you find solutions.

Do you have large debts? Don’t hesitate to contact one of our financial recovery consultants. They’ll guide you in reducing or eliminating your debts.