Interest rates do change and if you have a loan then it is often a concern that the rates may go up but there is no predictability about them. This means that the best approach is hope for the best and prepare for the worst. It is good not to be negative and worry about something that may never happen, it is no good for health. However, having a plan in place in case it does, will not only allow you to cope with the situation, but will also allow you to feel more relaxed about the future. You may feel that it is hard to prepare for an increase in interest rates, but there are things that you can do.
- Get the cheapest loan – if you make sure that you are not overpaying for your loan then this can help to keep your loan costs down. Do not wait until rates rise to swap though. Regularly compare the loan prices and decide whether you want to swap to a different one. You may feel you want to swap to a fixed rate so you know rates cannot rise but you may be tied into a lender with this sort of loan. Do make sure that you check if there are costs associated with swapping lenders as these could be higher than the money you save in interest.
- Overpay where you can or save – if you can overpay some of your loans, this means repaying more than required, then you will be able to pay them off early. If you can do this then any increases in interest rates will not his you so hard as you will be being charged interest on less money and you will more easily be able to afford it. However, some lenders will charge an early redemption fee to anyone that tries to repay early and this could be very high. If this is the case, then you may be better off not repaying early, you will need to do some calculations to work it out. If this is the case then it will be better to try to put money aside in a savings account whenever you can. Then if rates do go up, you will have a bit extra to fall back on, should you find that you start to struggle with the repayments.
- Do not overspend unnecessarily – it can be wise to make sure that you do not spend unnecessarily. This means cutting back a bit on luxury purchases or more expensive items. If you are considering buying a more up to date television, for example, but are concerned about how your loan costs may rise, then wait a while and put the money you would have spent on the television in a savings account to use if you need it. Then once you have repaid the loan, you will have that money to buy the new television in the account if the rates have not gone up. Holding back on spending even on small luxuries could make a difference for the future. Knowing that you have a bit of money behind you should help you to feel more relaxed about the future.
- Be aware of where you can cut down if you need to – it may be that you are not keen to cut down on all of your spending as you may want some treats and feel this is over the top to prepare for something that may not happen. However, you should be aware of where you can cut down where necessary. It can be wise to scrutinise your spending so that you know where you are spending money unnecessarily and you will be able to cut down in those areas if you need to. Make sure that you make a note of your discoveries and keep them safe so that you can act quickly if rates do go up. You may find that you panic and worry if rates rise and so having these notes will allow you to approach matters in a methodical way.
- Brainstorm ideas of where to earn more money – it can also be wise to think about ways that you might be able to earn more money if necessary. This might be necessary if the rates go up so much that cutting spending does not produce enough money or if it is not possible to cut spending at all. It might be that you think you might be able to do some online work, some freelancing, take on a weekend job or whatever. Thinking about what options are there and what might suit you and your lifestyle is worthwhile. Like the above, note them down and keep them safe so that you can refer to them if you need to.