Tips to Manage Your Borrowing and Debt as Interest Rates Rise
EDUCATING MYSELF | READ TIME: 3 MINUTES
By Shari Kruzinski | Published: May 2023
Borrowing and credit can play a key role in reaching many major life milestones but need to be managed properly, particularly during periods of elevated interest rates, to avoid falling into debt.
A survey from WSFS Bank found that 38% in the region are focusing more on paying down debt, and 37% are avoiding borrowing or taking out a loan as a result of rising costs of living and higher interest rates over the past year.
Here are tips to manage your borrowing as interest rates rise.
Assess Your Needs and Adjust Your Budget
Whether you’re purchasing a home, paying for education or even just some new furniture, credit and borrowing often play a part in larger purchases in life.
Before utilizing a loan or credit card, it is important to assess your needs, what your payment options are and if you can truly afford the purchase. With interest rates rising to levels not seen in years, it is vital to keep a close eye on your spending and borrowing so you do not build up too much debt.
Something you previously could afford may no longer be in the budget because of rising prices. While adjusting your lifestyle can be difficult, you need to act quickly if you find a deficit in your budget.
Start by taking a close look at your spending and saving to see where you can make cuts. For example, looking for deals at the grocery store, reducing ordering takeout or dining out, and monitoring your subscriptions you no longer use.
Online and mobile banking are great tools that enable you to monitor your spending in real-time so you can pivot where needed. If you’ve built up rewards through your credit cards, such as cash back, now may be a good time to use them to help offset increased costs on everyday items.
Evaluate Your Borrowing and Repayment Options
Twenty-five percent of regional respondents in the WSFS survey said they have more debt now than a year ago. If you find yourself in debt, it is important to develop a plan to manage it as soon as possible.
While it is ideal to pay off your credit card balances in full each month to avoid interest accruing, that is not always possible for everyone. Even if you can’t pay in full, ensure you’re paying on time and try to pay more than the minimum – even a little extra payment can make a difference over the long run.
If you’ve built up credit card debt, consolidating that debt to a card with a lower interest rate may help pay it off. Finding a card with a 0% introductory rate can also help you pay off more debt while the rate is low, you’ll just want to do your homework to understand any transfer fees and what the interest rate will be after the introductory period.
Personal loans are another option to help consolidate and work toward paying off debt. These loans typically have a lower interest rate than credit cards, provide a fixed monthly payment, and a specific timeframe when you know the debt will be paid off.
If you feel you need more help understanding your options, consider setting up an appointment to speak with your local banker.
Your banker can help you understand and navigate your finances while also helping to identify borrowing options and put a plan in place to help you reduce your debt over time.
About the Author – Shari Kruzinski
Shari Kruzinski is Executive Vice President and Chief Consumer Banking Officer at WSFS Bank. Her career spans more than 30 years in the banking industry, including 34 years with WSFS. In her current position, Shari leads the Consumer Banking division including the Retail network, Small Business banking, WSFS Mortgage, and the Contact Center.