The Bank of Canada had another interest rate hike from 4.25% to 4.50% on January 25, 2023, which marks the eighth consecutive time they have increased the interest rate. Inflation is one of the many reasons why the Bank of Canada raises interest rates.
The inflation rate decreased to 6.32% from 8.1% in mid-2022, which is still three times the target inflation rate.
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There are various ways to save yourself from nightmares, even when the interest rates rise. Hikes are something we can’t control, and all we can do is prepare for it.
The question is;
How can you protect yourself from further interest rate hikes?
1. Pay off debt as quickly as possible
Waiting for the interest rate to go down is something we can’t rely on. We are still determining when the interest rates will go down, and as much as possible, we have to prepare for the hikes more. So let’s always assume the hikes.
Paying off debts as much as possible with the current rate is ideal. The more debts you pay today, the lesser you have to pay debt with higher interest rates in the future.
2. Think before engaging in deferred payment plans
Deferred payment plans have higher interest rates compared to usual. It’s so easy to be tempted by a buy now, pay later policy; however, you should always think twice before engaging in one.
Study all the interest rates and hidden charges that may come with every purchase. Not every ad tells you everything. You have to look it up yourself, or else you may be charged more than what you signed for.
3. Generate income with your home
There is various strategy to earn money using your home. You can save money by generating extra income to pay off additional payments when hikes occur.
For instance, you are living alone in a two-bedroom apartment. You can put up the other bedroom for rent and find a roommate if that won’t be an issue for you. The home bills will be cut in half, and the money that’s supposed to go to your rent, can go to your emergency funds or saving.
If you are a family and don’t need a parking space, you can rent it out to your neighbor that needs one.
The extra money you get from these simple strategies can help you prepare for interest hikes.
4. Have a balanced budget
This may sound cliche but do not spend within your means. Have everything on budget and try to stay within it. Even if you have a lot of extra cash, it is crucial that you still put aside a sum for your savings.
Doing so will protect you from future interest hikes.
5. Lock in a low-interest rate
It may not be the ideal option for everyone, but it can help those tempted by their spending. Locking lower interest rates on debts, you can’t afford to pay off quickly will give you time to pay them off when they are locked.
Again, this may only work for some.
Who is affected by interest hikes?
Generally, if you are a borrower, you are most likely affected by the interest rate hike, whether it’s a mortgage, line of credit, or personal loan.
If you are a borrower who holds variable rates, you are the most affected by interest rate hikes. Because the variable rate fluctuates, the moment interest rates, your payment towards your interest will also increase.
You can also be affected if you are a fixed rate holder. If you need to renew your fixed-rate debt, you are most likely to be affected by the increasing rate.
The reason why there’s an interest rate hike?
Bank of Canada raises its interest rates mainly because of inflation. COVID-19, which happened in March 2019, significantly affects the economy and causes inflation.
There’s a chance that interest rate hikes would be on pause because inflation is expected to “decline drastically.” as mentioned earlier, the inflation rate decreased by almost 2% before 2022 ended, still three times than the target 2% inflation rate.
The interest rate hike has its share of ups and down. The only thing you can do is to prepare for it when it happens. Getting yourself protected is a lot harder than you thought. It would take a lot of patience to make everything work for you.
Always look at the positive side of each interest rate hike. You will be stressed out rather than getting solutions for your problem. It’s more complicated than saying, but you can always try.
Credit Repair Now is here to help you with your credit problems when rates increase.