How rising interest rates are impacting households and what you can do to prepare

Rising interest rates can have a significant impact on households, affecting everything from mortgage repayments to credit card debt. With the current economic climate and uncertainty around future rate increases, it's essential for households to start budgeting now to prepare for further changes.

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Households with an average loan size of $586,000 will be forking out $14,000 more annually compared to what they were paying this time last year.

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For many households, the largest impact of rising interest rates will be on their mortgage repayments. Even a small increase in interest rates can result in a significant increase in monthly mortgage payments, putting pressure on household budgets. To prepare for potential future rate increases, households should consider reviewing their current mortgage arrangements and exploring options such as fixed-rate loans or refinancing to secure a more competitive interest rate.

In May, the reserve bank increased the cash rate by 0.25% to 3.85%.

Reviewing credit card debt

Credit card debt is another area where rising interest rates can have a significant impact on household budgets. With high-interest rates and often substantial balances, credit card debt can quickly become unmanageable when interest rates rise. To prepare for potential rate increases, households should consider developing a debt repayment plan, prioritising high-interest debts, and exploring options such as balance transfers to secure lower interest rates.

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Track and review monthly spending budgets

Another way households can prepare for rising interest rates is by reviewing their overall budget and identifying areas where they can reduce expenses or increase income. This may include cutting back on discretionary spending, exploring ways to increase income such as part-time work or freelancing, or negotiating with service providers such as utilities and insurance companies to secure better rates.

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Rising interest rates can have a significant impact on household budgets, and it's essential to start budgeting now to prepare for further increases. By reviewing mortgage arrangements, developing a debt repayment plan, and identifying areas to reduce expenses or increase income, households can better manage their finances and navigate potential future rate changes with confidence.

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.

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