Using the economic crisis to secure your financial future

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By Patrick Naylor

Barely a day goes by without more horror stories of European countries about to default on their debt, the US jobless number increasing or the whole world heading further into a long term economic black hole.

While such tales can easily make everything seem like doom and gloom, the current global money crisis and the ultra low interest rates that have occurred as a result can actually help you secure your financial future and profit from the current crisis… provided you are willing to follow some sensible steps.

Make use of low interest rates to pay off debts

Whilst it might feel like the world will never ever climb out of the current economic mess that we’re in, the truth is that, all too quickly, the thought of interest rates of under 1% and loans available at c.3% will seem like very distant memories indeed.

Low interest rates are great for accelerating any debt solution because they mean that you are paying less to ‘borrow’ the money that you owe to your creditors. Whilst your existing loans or credit card agreements might be extortionate, using debt consolidation to switch onto a more affordable deal can significantly lower your monthly repayments and make sure that you benefit from today’s historically low interest rates.

If you have racked up large amounts of debts it is also worth considering getting some IVA advice. Using an Individual Voluntary Agreement, or IVA, to help split what you can afford to repay between your various creditors can go a long way to simplifying your repayments and this, coupled with lower interest rates, can speed up the path to financial health.

Consider over-paying on long term commitments like your mortgage

Once you’ve taken steps to get your debt management plans sorted out and are easily living within your means, it is time to consider whether you can afford to over-pay on some longer term debt commitments.

If you have a mortgage, the current low interest rates will mean that the amount you’re paying to borrow money will have significantly decreased, meaning that your monthly payment will have reduced – unless you’re on a fixed rate. As long as your budget allows, it makes great financial sense to keep making payments at the ‘old’ level. This way, you can reduce your outstanding capital while times are good, helping to protect yourself against rising repayment costs when interest rates start to rise… and rise they will. Whilst it could easily be two or more years before rates begin to climb, everything points to the fact that once they do, they will rise sharply and when that starts happening, a safety buffer built through overpaying might come in very handy indeed.

Even if you’re on a fixed rate, it can sometimes pay to re-finance and switch to a new mortgage deal but before you take any definite action talk to an independent financial advisor who can consider your entire financial picture and advise you on the best course of action to take.

Bring forward large but essential purchases

Finally, it may sound counter-intuitive but if there are large purchases you know you will need to make soon, such as a new car or large household appliances, it can make sense to buy them now rather than leaving money in the bank to earn small rates of interest. Of course, with this option, it’s essential to ensure that you are buying within your means and that you can comfortably afford to keep up with repayments. This is especially important to consider if you take out a variable loan where repayments will increase when interest rates rise but as long as you take the proper care, now could be a time when it really can pay to ‘buy now, pay later.’

About the author

Patrick Naylor is a freelance writer, journalist and editor. Saving money and spending wisely are some of his obsessions. He likes to share his experience on frugal living, debt management and savings.

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