Debt issues don’t really change.
In 2012 I was interviewed on CBC Radio’s The Current, on a segment about Doubting Personal Debt and we discussed, even way back then, that debt is a “ticking time bomb”. Back then I warned that low interest rates were making our debt artificially ‘affordable’. I made the comment that we could be in trouble if interest rates rise. Today that concern is even more apparent.
Here’s the math:
If you have a mortgage and the interest rate goes from 3% to 4%, that may not seem like a big increase; it’s only 1%, right?
If the price of a loaf of bread goes from $3 to $4, that’s a $1 increase, but that’s a 33% increase in the cost. That’s huge, and it’s the same with mortgages, car loans, and all other forms of debt.
If your mortgage interest rate goes from 3% to 4% that’s actually a 33% increase in your interest costs.
Here’s an even simpler way to look at it: An increase of 1% in the interest rate on your $200,000 mortgage is an increase in payments of $200 per month. Do you have an extra $200 per month? If you are living paycheue to paycheque you probably don’t, and that’s the problem with debt: if anything changes, like the interest rate, you’ve got a problem.
So what’s the solution? As I said on the radio today, the solution is to reduce your debt, so that if interest rates go up, or if you lose your job, or get sick and can’t work, you don’t get stuck with interest payments you can’t afford.
If you already have more debt than you can handle, take 30 seconds and try our free, on-line debt options calculator so that you can learn how to eliminate debt, and defuse the ticking time bomb.