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5 Simple Steps To Help You Avoid Interest Rate Problems

Most of us do not have a very good understanding of how interest rates work, simply speaking we all know that when interest rates are high, it is bad and when interest rates are low, it is good. Interest is a significant part of the money you have to repay on your debts. As a consequence it is beneficial to understand interest rates and to be aware what interest rate you are currently paying. Perhaps the most confusing element of interest rates is that the majority of credit products are subject to variable or floating interest rates.

It is important to realise that when interest rates go up, the cost of your debt increases. Interest rates are decided by the Reserve Bank of Australia and they tend to move interest in increments of 0.25%. While this does not appear to be much, interest rates can fluctuate anywhere between 3-4% over the period of a year. The difference in cost between a 6% and a 10% mortgage is significant and the difference between a 20% and a 24% credit card is just as large. Here are 5 simple steps that can help protect you from fluctuating interest rates.

Cut up your credit cards and stop accumulating debt

Not using credit is a simple and obvious way of avoiding interest rates. If you stop using credit cards and other forms of credit you will not be accumulating further debt. It is best to use credit only when it is cheapest, for example in a low interest rate environment. However it is recommended that when interest rates are high you should try to avoid using credit.

Get rid of all your high interest debt

Significant rises in interest rates can result in making it difficult to repay your minimum obligations every month. This is especially true if you are carrying several credit cards and a large overdraft facility. It is definitely not in your best interests to have credit facilities that charge over 20% and if possible you should get rid of those straight away. There are cheaper alternatives, such as the several credit cards that are below 12% at the moment. Credit cards have variable interest rates, so consequently the only way to completely protect yourself from fluctuating interest rates is to transfer all your high interest debt to a single low, fixed interest facility such as a consolidated loan.

Consolidate your debt into a low, fixed interest rate facility

A debt consolidation loan offers an opportunity to group all your debt together into a single easily managed debt. The benefits of debt consolidation may include:

  • A low fixed interest rate.
  • A fixed timeframe for paying off your debt
  • A single fixed monthly payment.

Debt consolidation should make your debt considerably cheaper as well as easier to manage.

Fix your mortgage interest rate

Most mortgages are linked to a Standard Variable Rate. This rate floats in line with the Reserve Bank's interest rates so when they go up, your mortgage will go up and become more expensive. Most money lenders now offer fixed rate mortgage options, this allows you to have a fixed interest rate on your mortgage for a term of up to 5 years. This is beneficial as it allows you to manage your money more easily for that term without being concerned by fluctuating interest rates.

Start budgeting

As always the most important thing to learn is good financial management. By budgeting you can gain control of your finances and consequently protect yourself against fluctuating interest rates. By simply controlling your money better you can start toward a debt free future. Budgeting allows you to see exactly where you are spending your money and also how you can better manage your finances.

If you would like to find out more about how you can protect yourself against interest rate rises then fill in the following form or call Debt Relief on 1300 781 034 8am - 8pm 7 days a week and our staff will assist you.

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