Interest rate rises: five ways to fight the financial pain

The Reserve Bank has hinted at more rate rises despite holding steady in July. Here’s how to defend yourself from further blows.

Borrowers were given a reprieve by the Reserve Bank on Tuesday, but the pain of its previous rises and worries about more to come mean people still need to fight the financial hits.

The RBA flagged more rises may be needed despite leaving the cash rate at 4.1 per cent in July, and its barrage of almost-monthly punches has left many people wobbly on their feet. Other borrowers who fixed their mortgage rate two or three years ago are yet to face the haymaker, when their fixed loan reverts to variable.

The RBA’s dozen rate rises since May last year have added more than $1100 a month to the cost of a typical $500,000 mortgage, and about $1700 monthly to a $750,000 home loan.

While most people are unable to escape all the pain from those rate rises, there are several ways to deflect some of the punches. Here are five.

COMPARE COSTS

Check your current home loan rate and how it compares with your banks’ new customers, and other lenders’ loans. Talk to your bank to see if they can offer you a better deal, and if you are in a position to refinance or switch lenders, don’t be afraid to walk.

Competition remains fierce among mortgage provides, and smaller lenders typically offer lower interest rates than the big four banks.

FIND HOUSEHOLD SAVINGS

Many people spend a pile of money on stuff they do not need, or even want. A quick scan of your recent credit card or debit card transactions may uncover recurring spending that you have forgotten about.

Stressed borrowers received some RBA rate rise relief, but worries remain. Picture: iStock

Head online and use free budget tools and comparison websites to gain a clearer picture of your total financial situation, and whether you can find better deals across utilities, insurance, phones, credit cards and other key expenses.

CONSOLIDATE DEBT

If you are battling a mortgage and several other personal debts with high interest rates, look into a debt consolidation loan that can result in a lower overall interest rate and free up some cash. But if consolidating into a mortgage, ensure you still try to repay as much as possible to avoid turning short-term debts into decades-long ones.

ASK YOUR LENDER FOR HELP

Banks and other lenders had plenty experience during the pandemic helping customers get through a tough financial situation, and today’s high interest rates are tougher than many people experienced in 2020 and 2021. Ask to speak with your lender’s hardship team, who may be able to help by temporarily switching you to interest-only or a repayment holiday, and do it soon to avoid plunging further into a debt spiral.

FREE FINANCIAL ADVICE

You can get free help from a financial counsellor by calling 1800 007 007 or visiting the National Debt Helpline’s website at ndh.org.au, which also has plenty of information about different debt solutions. It also has links to federal, state and territory government websites showing the available financial assistance and concessions.

A forced sale of your home is a horrible thing to happen, and should only be considered after every other avenue to fight rate rises is exhausted.

Originally published as Interest rate rises: five ways to fight the financial pain