Like many younger homeowners, you might be carrying a lot of debt. Debt isn’t always a bad thing – as long as you can make payments and your debt has helped you build a career (through student loans) or accumulate wealth (through a mortgage), debt can be positive. However, buying a new home comes with many other expenses, including furniture, maintenance, property taxes, and more. It can all add up and leave you feeling the pinch.
If you’re carrying large credit card debts, student loans, tax debt, or bank loans like a line of credit (unsecured debt), as well as a mortgage, your ability to continue to pay it back may depend on interest rates that are beginning to rise.
Young homeowners are particularly vulnerable to rising interest rates, since they’ve never really experienced them. For the past decade, interest rates have been historically low as banks have done their best to encourage spending and lending. A 40 year-old homeowner today would have been 3 years old when prime interest rates hit 20 percent in 1981. They remained above 10 percent for most of the 1980s and above 5 percent through the 1990s.
Not only would your mortgage payments increase dramatically at 20 percent, your credit card payments would, too. Many low interest credit card companies base their charges on prime interest rates, adding a spread to prime. Even if you have a good credit score and qualified for a low interest rate on your card, high prime rates could add significantly to your minimum payments and interest charges.
The biggest clue that you should be concerned about rising interest rates is how much money you have left at the end of the month. Could you afford to save an extra $100 a month to make debt payments? What about $200? Add up your total debt and add an extra 1% APR in interest charges. At what point will your debt become unaffordable?
Interest rates are on the rise again and it may be time to talk to a bankruptcy trustee, now known as a Licensed Insolvency Trustee, if you’re feeling the debt pinch. Even if you’re able to make payments now, you could be in trouble if interest rates rise.
Bankruptcy trustees such as David Sklar & Associates help you go through the insolvency process. Unlike debt consolidation loan companies, they don’t lend you more money. They help you file for bankruptcy or a consumer proposal. Many homeowners who currently can make debt payments might bristle at the thought that they need bankruptcy, even if they are carrying a high debt load. Bankruptcy trustees like David Sklar & Associates might recommend another option, such as a consumer proposal.
A consumer proposal protects your assets, including equity in your home. A consumer proposal will stop interest rates from accumulating and give you more breathing room to keep up with your mortgage. Talk to a bankruptcy trustee to discover if a consumer proposal is right for you as interest rates rise.
Rising interest rates can put you in a tough financial spot. Get ahead of your finances by talking to a bankruptcy trustee soon. The sooner you get help, the more options you have available to you.