People already struggling with debt will be pushed closer to the brink with interest rates going up this Tuesday for the first time in over a decade. Rates went from a historic low of 0.1% to 0.35%. All four major banks immediately passed on the rate rise increasing the repayment on an average $600,000 mortgage by $125 per month. It's not just mortgages. Interest rates on credit cards, personal loans and car loans will all go up.
The Reserve Bank governor, Philip Lowe has warned borrows to brace themselves for further hikes. Westpac economists are predicting that by May next year interest rates will be 2%. This would increase mortgage repayments by $950 per month. This will only add to the cost-of-living pressures already being experienced with petrol, meat, fruit and vegetable all increasing.
Should the RBA not be able to bring inflation under control rates will have to increase even further. Both major parties have promised to put more stimulus into the economy post-election which understood to drive inflation. Supply bottle necks, one of the drivers of our current inflation are unlikely to ease in 2022 according to Phil Levy, chief economist at Flexport and there is still the war in Ukraine driving increases in energy costs.
With increasing debt repayments and the cost of living going up debt restructuring becomes more attractive. With an option like a Debt Agreement, interest on debts in a debt agreement are frozen. Generally, the debt is reduced by a sizable amount. Other insolvency options like bankruptcy may be attractive for those who don't have the capacity to make any repayment.
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