Will personal debt become unmanageable when IR's rise ?

IveSeenTheLight

StevieJ wrote: »

You should get a card like the Barclaycard I have 2% discount for petrol and supermarket a tip, it is best to pay it off each month.

MSE would advise you buy on a credit card as it offers security against companies going bust and protects your consumer products, however as StevieJ says, pay it off on time, every month.

don't buy what you can't afford to pay off.

Graham_Devon

StevieJ wrote: »

You should get a card like the Barclaycard I have 2% discount for petrol and supermarket a tip, it is best to pay it off each month.

No point, I got nothing on it, but it's useful sometimes.

I use a tesco platinum card which gives me 1 point per two quid spend. Then use the tesco deals

wolvoman

ad9898 wrote: »

Disagree, completely with this, there are quite a few scenarios where rising IR's would have nothing to do with growth, many of them discussed already on the board.

Only inflation will drive interest rates up, and where is it coming from? Until recovery the commodity prices will remain subdued.

There is little to no wage inflation. Demand for products and services is hardly through the roof.

Inflation is caused by a supply/demand inbalance and that inbalance is only ever caused by economic growth or conflict.

ad9898_3

wolvoman wrote: »

Only inflation will drive interest rates up, and where is it coming from? Until recovery the commodity prices will remain subdued.

There is little to no wage inflation. Demand for products and services is hardly through the roof.

Inflation is caused by a supply/demand inbalance and that inbalance is only ever caused by economic growth or conflict.

A cut by the ratings agencies, gilt failure, foreign investors bailing out. The government are really pushing their luck with the amount of debt they are selling, especially when QE comes to an end. Recovery in other parts of the world could force oil prices up. Also their is the issue of last summer's high oil prices and the autumn's IR cuts falling out of the inflation figures by Christmas, inflation will be on the rise by the end of the year for sure, issues like this could push rates up.

Thrugelmir

The issue is also the lack of savings. Even a short period of unemployment, ill health, pay cut, no overtime can tip the balance for many people.

We have become accustomed to borrowing if we need money. Rather than saving for the longer term.

abinanthanb

ad9898 wrote: »

Low IR's are containing the debt issue for many at the moment, I know one person personally that will be almost certainly repo'd if base rates rise (he's on a SVR with Northern Rock at the moment). Just what kind of problems are likely to be unleashed if or should I say when rates rise.

Or, do many think that the current gap between base rate and lending rate will be reduced when the base rate goes up ?, leaving lending rates pretty much unchanged.

The main cause for repossession would be Default in Payment. Two things will cause default,
1. Unemployment of the individual
2. IR hike hence high Premium

The banks can change the payment type from INTEREST+PRINCIPAL to INTEREST ONLY, hence the reduction in monthly premium amount which will easily negate the high IR.
Also give a payment holiday, maybe extended to 6 months or more - by validating the credit profile of the individual. The loss of interest for that period would be much lesser compared to the repossession option.

PS: I have not come across a write-up anywhere about how to manage a toxic asset temporarily or in medium term.

Just my 2 cents.

IveSeenTheLight

abinanthanb wrote: »

The banks can change the payment type from INTEREST+PRINCIPAL to INTEREST ONLY, hence the reduction in monthly premium amount which will easily negate the high IR.
Also give a payment holiday, maybe extended to 6 months or more - by validating the credit profile of the individual. The loss of interest for that period would be much lesser compared to the repossession option.

There is a further option of changing the amortization period i.e. increasing the remaining period to pay off the mortgage.

It's not ideal as you end up paying back more in the long run, but it can help in the short term by reducing the monthly payments