Interest rates have been on a steady rise for the past few years, and analysts predict that they’ll continue their upward trend. It’s a good thing for savers and investors but not so great for borrowers and people who rely on credit cards to make ends meet.
The rising interest rates can be a tough pill to swallow for many of us. However, it’s essential to remember that you can still overcome them by taking the necessary steps to ensure that your finances remain stable. Here are some ways to cope with soaring interest rates.
Pay Off Debts
Avoid interest charges by paying off your entire credit card balance monthly. If that’s not possible, at least pay more than the minimum required monthly payment so that the interest doesn’t take over and balloon out of control.
Additionally, prioritize paying off the ones with the highest interest rate first. It’s because high-interest loans will cost you more money over time and prevent you from saving for other things in life. Once that’s paid off, move on to the next highest-rate debt until all your loans are gone.
If there are multiple loans with similar rates, consider paying them off based on their respective balances. Pay off the one with less money owed first to save yourself some cash in interest payments and avoid getting overwhelmed by higher balances later on in life (and having those higher balances financed at higher rates).
If you have multiple loans and want to save on interest payments, consolidating them can be an excellent way to do so. Debt consolidation involves combining all your loans into one new loan with a lower interest rate than what you are currently paying. In other words, you’ll only have one payment due per month.
It also means that if one lender raises their rates over other lenders, it won’t affect how much money is going toward paying down this new loan since they’re all being paid together through one account (and therefore at the same rate).
In general, debt consolidation allows you to save on interest payments and reduce the overall debt burden. It also helps improve your credit score because it’s much easier to manage one account.
Find Better Interest Rates
If you’re paying high interest on any of these loans, consider refinancing them at a lower rate. Use a comparison website and see what your options are. Don’t forget to ask about the lender’s loan approval process, closing costs, customer service, and payment options (such as biweekly payments).
Alternatively, if you have a credit card with high-interest rates, consider transferring it or canceling it altogether, except if there are any fees or penalties. You may also want to look into personal loans offered by online lenders like CreditNinja. They usually have lower interest rates than those currently offered by banks.
Keep Your Tax Efficient
Tax benefits can help you save money and make your hard-earned income last longer. If you’re an employee, seek advice on how to maximize your tax deductions, like by contributing more to your pension.
If you’re self-employed, check out the tax benefits available to you and ensure that they don’t overlap with any other schemes that would render them ineffective. Be aware of different income categories under which your salary will fall and their corresponding tax rates. It ensures that any extra cash you earn won’t go straight into government coffers.
Maintain A Good Credit Score
Having an excellent or near-perfect credit score means getting lower interest rates on loans and other financial products. Lenders will likely charge higher rates if you have bad or no credit. They’ll usually think there’s more risk involved in lending money to someone with no track record of paying back debts on time.
Even if you have a good credit rating, keeping it that way is crucial if you want to avoid paying higher fees when shopping around for better deals later on down the line. It means making sure that every payment gets made on time (or as close as possible) so as not to build up any negative marks against your name or cause lenders to think about whether or not they should give out new loans based on past behavior patterns.
Pick-up Up Side Hustles
While it won’t control interest rates, picking up a side gig can help you cope with them. It can serve as an additional source of income. It can also be beneficial if you’re trying to pay off debt or save for retirement and an unexpected expense fund while also dealing with higher monthly expenses due to rising interest rates.
Plus, it’s great for people who don’t want full-time jobs but want to make some cash on the side without committing themselves full-time to a job they don’t enjoy.
The best way to deal with rising interest rates is to have a plan in place. Don’t panic, but take steps to protect yourself from the effects of higher borrowing costs. More importantly, stay informed about what’s happening, look at all your options, and take action when necessary.