The rapid rise in interest rates is having a big impact on the financial well-being of consumers and businesses. Although a rise in interest rates is often seen as a positive economic indicator, as it can signal economic growth, it can have negative effects on people who have taken out loans or who carry a large amount of debt. Rising interest rates can lead people to need to file for bankruptcy because of the increase in monthly loan payments. Interest rates affect the amount of interest that accrues on loans, including credit card debt, auto loans, and mortgages. As interest rates rise, the amount of interest that accrues on these loans also increases, resulting in higher monthly payments.
For example, let’s say you have a $10,000 credit card balance with an interest rate of 15%. If interest rates rise to 20%, the amount of interest that accrues on your balance each month will increase, resulting in higher minimum payments. If you are already struggling to make ends meet, the increase in your monthly payments could push you over the edge, making it difficult to keep up with your bills and ultimately leading to bankruptcy. When interest rates rise, mortgage rates can also increase, making it more expensive to buy or refinance a home. This can lead to a decline in the housing market, resulting in lower home values. For those who have taken out a mortgage, a decline in home values can lead to negative equity, which occurs when the amount owed on the mortgage is higher than the value of the home. If you have a variable, rather than a fixed interest rate on your mortgage, the rising interest rate can suddenly make the mortgage payments too high to afford.
Rising interest rates can also impact businesses, particularly small businesses. Small businesses often rely on loans and lines of credit to finance their operations. When interest rates rise, the cost of borrowing increases, making it more expensive for businesses to borrow money. This can put a strain on cash flow, making it difficult for businesses to pay their bills and ultimately leading to bankruptcy. Between the current inflationary pressures on consumer prices and the rising interest rates on credit card debt and auto loans, many people are struggling to repay debt and keep up with living expenses. Filing bankruptcy can relieve the pressure of high debt and give you a fresh start. It won’t increase income but it will allow you to devote the income you do have to the critical expenses of living in the current economy. Contact the Nancy Thompson Law Office if you want to explore how bankruptcy can help you survive in today’s economy.