If you have a credit card then you may worry that interest
rate rises will be a big problem for you. This could be the case but it very
much depends on how you use your credit card. People use their cards in
different ways and for some a change in interest rates will make no difference
at all but for others they will find that it does. So it is good to think about
the way that you use your card and whether it will have a big impact on how
much interest you will pay.
If you repay in full
If you repay your credit card in full each month then you will never be paying interest on it. This is because you only pay interest on any outstanding balance that you leave from month to month. So, if you repay in full all of the time then you never pay interest and so the interest rate will not be relevant to you.
However, it can be wise to protect against forgetting to repay in full. If you set up a direct debit to repay for you each month just like you would with a regular loan then if there ever is a circumstance where you forget about paying the bill, it will be repaid for you. You may think this will not happen but sometimes we get busy or distracted, perhaps there is an emergency or something and it just goes out of our head. It is also good to always stay aware of your spending to make sure that you are not spending more on the credit card than you will be able to afford to repay. If you just make sure that you check the balance every so often or if you have bought something expensive, are careful about everything else you buy then you should be okay.
If you have a card balance
If you do not repay your card balance in full each month then you will be paying interest on the outstanding balance. It could be that you repay just the minimum or that you pay a bit more but do not clear the whole amount. In either case you will pay interest on any unpaid balance. If the interest rates go up then you will end up paying more interest on those unpaid balances. Therefore, the credit card will get more expensive.
If the rate only goes up by a small amount then it may not
make a significant difference to the cost of the credit card. However, if it
goes up a lot, this will make a difference as will a series of small increases.
It is wise to watch out for these as there is action that you can take in order
to help. There is not necessarily a need to worry, but a need to act.
What can I do about rate rises?
There are things that you can do which should help you if the rates go up. Firstly, see whether you can repay any of the balance that is outstanding. If you have any spare money then use it to repay a bit and this will mean that there is a lower balance to charge interest on and you should be able to manage the interest payments easily. It is in fact wise to keep your balance as low as possible all of the time so that you can save money.
Another thing you should do is to look around to see how
rates compare. You may find that you could swap to a credit card that is
cheaper because it has lower interest. This is well worth considering even if
you do not have an outstanding balance as if ever you cannot repay in full, you
will not be paying so much. There are comparison websites where you can compare
credit card rates which can be handy but not all credit cards will be on there.
Therefore, do a bit of your own research as well so that you can be sure that
you have taken all of the cards into consideration.
We have no influence over rate rises and predicting them can
be hard as well. Therefore, the best thing that you can do is to have a plan that
you can put into place if they do go up. Think about whether there are places
that you could cut down your spending so that you can afford the higher
interest, for example. You might also be able to earn more money somehow that
would cover those costs. Think about some realistic things that you could try
and you could try them right away and use the money you gain to whittle down
the credit card bill or you could just keep the ideas ready for when you might
need them in the future
You may worry, whether you are graduate or thinking about
doing a degree, that if you have a student loan then it could mean that you may
not get a mortgage in the future. It is good to think about your future when
you are considering a student loan and there are a lot of concerns about
student loans and it is good to make sure that you really understand how they
work and whether you should really worry about your future with regards to
borrowing. While there are no rules about who can and cannot borrow money, each
lender will have specific criteria when deciding who they want to lend to.
However, due to the way that student loan repayments work, they may not even be
aware that their potential borrower is a graduate.
How students Loans Work
Student loans are very different to standard loans and this means they can have a very different impact on your future. Firstly, they will finance a course that will hopefully enable you to earn a higher income and do a career that makes you happier. Then when you repay the loan, it is also very different to a conventional loan. You will only have to repay the loan if you are earning above a certain threshold and that means that you will not be short of money as it will just be a small percentage once it is deemed that you are earning enough. You will also only need to make repayments for thirty years after you graduate and then the remaining loan is written off. This means that you are not tied into a lifetime of debt and in fact you may never need to repay any of your loan. You will also repay through your tax code and this means that your loan will not show up on your credit record.
How they affect your credit rating
Normally having a loan will mean that it will show up on your credit rating. Then when you apply for other loans, potential lenders will see this and they will consider whether this might mean that you will not be able to afford the repayments on their loan. They may consider you to be a risk and therefore not lend to you or choose to only lend to you at a higher rate of interest. With a student loan it will not show up your credit record and so this will not happen. Any other borrowing that you have will show up though. Therefore, while you are studying it could be wise to think carefully about taking out other types of loans including overdrafts and credit cards. If you repay the credit card in full each month then you should be okay but an overdraft will not look good especially if it remains unpaid for a long time.
Should you consider a mortgage
You may still feel concerned about a mortgage as the lender will look at your income to see whether you can afford the mortgage. To calculate how much you can borrow they will look at your earnings before tax and so any payments that are taken out by your employer such as student loan repayments or work pensions and things like that will not show up. However, they will look at your general bank statements and see whether you have enough money each month to cover mortgage repayments. If you have already been paying rent, then it is very likely that you will be fine as you can use the money that you would have been paying out in rent to cover the mortgage repayments instead. Often mortgage repayments are cheaper than rent anyway. The amount you repay for student loans is also very small and so it would not really have a significant impact on your ability to repay a mortgage anyway. If you are earning enough money to have to pay student loan repayments and you are living within your means then you should be fine.
You do need to think hard about whether you will be able to
keep repaying the mortgage in the long run though. Make sure that you are
confident that you will have an income for the full term of the mortgage that
will allow you to be able to keep up with the repayments. It can be hard to
predict what you might be doing in the future but think about your career
plans, family plans and things like that and then you can decide whether this
is a sensible idea. Most people manage a mortgage along with their other
expenses but it is wise to make sure that you take one on that you will be able
to afford alongside the other expenses of owning a home such as insurance and
costs of maintaining it and decorating it.