How High Interest Rates Affect Your Personal Finances

What's happening?

According to G1, Finance Minister Dario Durigan stated that high interest rates are the main bottleneck for the Brazilian economy. With the Selic rate at 14.25% per year, Brazil stands out with some of the highest interest rates in the world. This directly impacts public debt, which already represents 81.4% of GDP, and discourages private sector investments.

The increase in interest rates has a cascading effect: when rates rise, the cost of credit increases, and consequently, public debt worsens. The government is trying to harmonize public spending with monetary policy, but it still faces many challenges.

Why does this matter?

High interest rates don't just affect government accounts; they have a direct reflection on your financial life. If you have a loan or a credit card, higher rates mean you'll pay more over time. For example, if you have a R$ 100,000 loan with 14.25% interest, your installment payments can be significantly high compared to a scenario with lower rates.

Furthermore, with the economy slowing down, job opportunities and salary increases may be more limited. This creates a cycle of financial uncertainty, where you may have to adjust your budget to handle increasing expenses without the same prospect of income growth.

What changes for salaried individuals paying bills?

If you receive a fixed salary, high interest rates can directly impact your monthly budget. With more money going towards debt payments, you may find less left for your basic needs and savings. For instance:

• Debt: If you had a loan with an 8% interest rate and are now paying 14.25%, your installment may have increased from R$ 1,000 to R$ 1,400.
• Credit card: The credit card revolving debt can go from 10% to 15%, increasing the amount you pay if you don't pay off the total bill.
• Investments: High interest rates can discourage investments. If you were thinking about starting a business or making a purchase on credit, you might reconsider your options.

What to do?

Here are some concrete actions you can take to protect yourself in this scenario:

• Reassess your debts: Focus on paying off higher interest debts first, such as credit cards and overdrafts.
• Create an emergency fund: With economic instability, having financial reserves is crucial. Try to save at least 3 to 6 months’ worth of expenses.
• Review your budget: Use the 50/30/20 method to organize your spending. Allocate 50% for needs, 30% for wants, and 20% for savings and investments.

Connection with financial organization

This scenario of high interest rates reinforces the importance of having good financial organization. By using the 50/30/20 method, you can better prepare for unexpected events and ensure that your debt does not consume all your income. ADXIS can help you monitor and adjust your budget, ensuring you are always in control of your financial situation, even in tough times.