Interest rates are great when you’re earning money and bad when you’re borrowing money. When interest rates rise, it can cause even more debt or give you more trouble in staying within your budget and paying your bills on time.

The good news is there are ways you can manage the rising interest rates without getting over your head and filing for a bankruptcy. A consumer proposal is another option that would eliminate your debt and stop all interest immediately.

When Interest Rates Rise, What Happens to Your Debt?

Here’s the problem. When interest rates rise, you pay more for your outstanding balances. Credit card interest rates aren’t fixed, so if interest rates rise, your credit card rate will likely do the same.

You are entitled to advance notice of the increase and have options to avoid the potential downfall it could cause.

While not every solution will apply to everyone, it’s worth knowing what you can do.

Pay your Balance Off in Full

If you can afford to pay your credit card balance off in full, now’s the time. When you pay it off, you won’t have to worry about rising interest rates because you will no longer have credit card debt.

Transfer to a 0% APR Credit Card

If you have great credit, you may be eligible for a 0% balance transfer credit card. Any balance you transfer over won’t be subject to any interest if you pay it off before the expiration date. Most balance transfer credit cards have a promotional period for around 6 – 18 months. It’s best if you pay your balance off in full before then.

Consider Debt Consolidation or a Consumer Proposal

Even if you aren’t eligible for a 0% APR balance transfer credit card, you may be eligible for debt consolidation. Whether you have a credit card with a lower APR that you can transfer your debt to or you work out a debt consolidation plan to put everything into one loan, you can avoid the rising interest rates that make credit card debt unaffordable. Another option that you can explore is the consumer proposal that would consolidate all unsecured debt into one low monthly payment, stopping all interest immediately, closing the credit cards and giving you that fresh start.

Ways to Protecting Yourself from Rising Interest Rates

If you’re looking for ways to protect yourself from rising interest rates and carry credit card debt, consider these precautions.

Don’t Take out a Home Equity Line of Credit

Paying off your credit card debt with a home equity line of credit is like changing one credit card for another. HELOCs have variable interest rates too, so the chances of the rate increasing are very high.

Instead, take out a fixed rate loan, whether a cash-out refinance of your first mortgage or a home equity loan with a fixed rate. When your loan has a fixed rate, it’s not affected by rising interest rates and your payment doesn’t change. This makes it much easier to get out of debt.

Don’t Take out Loans with Variable Interest Rates

Any loan with a variable interest rate can change when rates increase. Don’t take a chance. Always read the fine print and/or ask questions about the loan’s rate and if and how it might change. 

Don’t Carry a Credit Card Balance

The best way to protect yourself is to not carry a credit card balance. It sounds easier said than done, but there are a few simple tips:

• Don’t charge what you can’t afford

Stick to your budget and decide if you can pay for whatever you’re thinking of charging in full. If you can’t, then it doesn’t belong on your credit card. You’ll just subject yourself to rising interest rates.

• Don’t use your credit card as an extension of your income

Your credit card isn’t more income. It’s a financial tool to use for large purchases when you need financial protection or to pay for things that only accept credit cards, like hotels and flights. But, if you can’t afford what you’re charging, it doesn’t belong on your credit card. If it’s not a planned purchase, don’t buy it.

Get Help if you’re in Over your Head

If you are already in credit card debt and can’t find a way out, increasing interest rates could make things even worse. It’s best to seek financial help from a credit counsellor to see what options you have to get out of debt.

A professional credit counsellor can look at your situation and help you decide the best way out. Reviewing your budget with you is your first step. Knowing what income is coming in and expenses going out will help decide what options are best for you to lower the interest rate or stop it completely and close your cards.

You might also find that your only options are a consumer proposal or bankruptcy. A professional counsellor can look at your situation and decide what would best suit you. Credit solutions aren’t a one-size-fits-all approach. It takes time and experience to know the best route for you.

Ways Rising Interest Rates can Help You

Believe it or not, rising interest rates can be beneficial. If you’re saving or investing money, higher interest rates work to your advantage.

When interest rates increase, see what you can do to increase your savings. Here are a few simple ways:

• Set up automatic savings 

Your bank or employer can set up automatic savings. With your bank, you can set up the date and amount you transfer funds from one account to another. With your employer, set up some of your direct deposit to go to your savings account and the rest to your checking. This takes the thinking out of saving.

• Cut back on spending

Find ways you can cut back on your spending and instead save the money. When interest rates are high, the last thing you want is more credit card debt. Instead, take that money and make it grow so you have more money but you didn’t have to work for it.

Final Thoughts

It can be hard when interest rates are on the rise. If you have a lot of credit card debt and don’t know where to turn, let the experts at EmpireOne Credit help. Our professionals will help you come up with a plan to get out of debt and help you create a plan to stay out of it moving forward.