Debt Predictor : Will interest rate rises tip you over the edge?

What if inflation goes up? What if house prices crash? Using our unique debt predictor tool you can get an insight into how you might be affected by changes to the economy.

This simple debt predictor will aim to give you an idea of how your finances might change in the future based on information we can all gauge from the economy and how it might go. Results are purely a rough guide and should not be relied upon to base a true in depth financial analysis.

Your privacy

Information to personally identify you is not requested by this tool.

Information entered into this tool is not stored on your pc.

Things to have to hand, unless you know the key details from them

• A recent bank statement so you can enter your debt repayments
• Your loan/mortgage agreements and credit card statements

For a more complete picture complete the budget calculator first and feed the results into this!

Debt Prediction

Having a crystal ball that told the future would be brilliant but in reality, predicting the future state of the economy is a difficult task for even the wisest stockbroker in the City of London. The thing is though that you are here, looking at this tool. This means you are concerned enough already to be looking at your finances. Hopefully the tool has gone all green and you'll be fine, but what if it goes red all over? It's not certain that inflation will do as predicted, or interest rates will go up as entered, but if they did then it does give a really good insight into how you might be affected.

Inflationary pressures

Inflation is driven by rising prices, one of which is peoples wages, others being the prices of goods in the shops and energy prices - oil, gas, electricity. When inflation is high the economy can spiral out of control like it did in the late seventies. Everything becomes expensive or more expensive, almost overnight.

Change Dec '07: We've changed the inflation rate used above to the RPI rather than the governments preferred CPI. RPI is a better indication of actual prices that affect us.

Combating inflation

To combat inflation, interest rates are set at a level that forces peoples spending down and other peoples start saving more instead. This means that when interest rates are low it is cheap to borrow money, money which usually ends up in the economy and therefore boosts employment and therefore taxes and thus the government coffers....which goes into public spending usually. A stable economy with low inflation and low interest rates is therefore a happy place to be in.

Housing inflation

House prices seem to have their own inflationary indicator nowadays. When house prices at the bottom end go too high people cannot buy them, regardless of demand or creative ways from lenders to lend money.....if you can't afford a house you can't afford one. So either your wages go up to afford it (inflation) or prices come down. If your wages go up, so do most other peoples, which causes the economy to buckle. Interest rates go up. If the house prices come down it is generally because they can't be afforded....and usually because interest rates are higher making repayments bigger.

When good times go bad

When the economy is on the up, house prices rising and interest rates low so everyone can borrow lots of money and not repay much each month, everything feels good. But it's an old saying "The good times don't last" and history shows they don't. This means that some people start to feel a squeeze earlier than others and this results in unsustainable debt. This debt builds and build until severe financial problems occur. Within a short period of time one person defaulting on a loan becomes ten, ten becomes a thousand and that's when the problem becomes a big headache for everyone.

Getting out of debt in good times

Don't expect debt to go away. It won't. It has to be nipped in the bud as soon as it becomes an issue. Whether it is a lifestlye change or another solution getting debt sorted whilst times are thought to be good is the wise choice. It means there are more options, better deals and when you are debt free others are probably just going into sorting it.

Getting out of debt in bad times

When the economy is bad, lots more people have problems making debt repayments. This means the lenders are really starting to suffer which in turn means they need to start protecting their own businesses from troubles too. Options to get out out debt become fewer, rules are tightened and everything becomes more difficult.