The harsh but necessary increase of 0,5% in interest rates by the Reserve Bank this week was harsh and unexpected. It does, however, show how determined the MPC is to bring back inflation into the target range of 3% to 6%.
Dealing with rising interest rates can be challenging, but some strategies can help individuals manage the impact on their personal finances.
Refinancing loans
If you are struggling with repayments on your bond or vehicle you may do well to approach the lender and explore the options to refinance the loan/s over a longer period of time. This will result in a lower repayment which could help in coping with your monthly cost of living.
Debt consolidation
Another option to consider is approaching your bank holding your bond and exploring options to lend more against the value of your house. The additional amount can then be used to settle all of your debts. This amount now sits in your new access bond at a much lower repayment than the combined repayments you used to pay. However, you must be mindful of repaying the loan sooner than later as it will cost you much more in the long run.
Building and emergency fund
Extra cash should be saved in your access bond or a money market account. Aim towards 6 months of your living expenses. If you refinance or consolidate you should have extra to save. Rising interest rates have a positive effect in these spaces and you should capitalise on the window of opportunity as interest rates are likely to rise even further before they come down.
Cut down on spending
Adjusting spending habits and cutting back on discretionary spending can also help reduce the impact of rising interest rates on personal finances. Easier said than done in the face of steep price increases in food, fuel and electricity (the odd times between load-shedding).
Overall, dealing with rising interest rates needs you to face it head-on by being proactive and making a plan. You can mitigate this by being mindful of the impact of rising interest rates and ways to soften the landing.