How rising interest rates affect your debt
By Mr Bankruptcy
4th February 2026
Rising interest rates are a concern for anyone with debt in the UK, particularly if that debt is growing unmanageable. So, it was a relief to many when the Bank of England (BoE) cut its base rate by 0.25% to 3.75% just before Christmas. This was the signal many other lenders were waiting for to follow suit.
However, with inflation showing signs of creeping back up again, it’s not beyond the bounds of reason for the Bank’s monetary policy committee to raise the BoE interest rate in the future, to try and bring inflation back down.
So what can people do with this breathing space to prepare themselves for a future hike in their interest repayments?
What do rising interest rates mean for you?
When interest rates go up, so does the amount of interest a borrower has to pay back each month, putting increased strain on personal, family, and business finances.
Whenever the BoE raises its base rate, so do banks and credit companies. Anyone with a tracker or variable rate mortgage will soon notice they have less spare cash at the end of each month.
Fixed-rate mortgage deals and loans offer a temporary shield from base rate rises, but refinancing at the end of their fixed periods can be expensive. Many mortgage owners coming to the end of a five-year, fixed interest deal this year could get a shock when they have to remortgage.
Taking on a new loan will also be more expensive, and deals may be harder to find as lenders become more cautious. Business owners with variable-rate loans will also face a squeeze on their margins which mean making some difficult choices.
While interest rates on unsecured debts (e.g. credit cards or overdrafts) tend to be fixed, their higher rates (due to the extra risk involved) don’t make life any easier for people in debt, and missed payments will worsen a debt situation.
7 steps to protect yourself against an interest rate hike
With all of this in mind, a period of relative respite is a good time to think about steps for protecting yourself against high interest rates in the future.
- Review all your debts. If you know what debts you owe, their interest rates and loan terms, you can prioritize them and start overpaying each month, to reduce the impact of a future rate rise.
- Mortgage overpayments. If your terms allow it, making overpayments now while rates are relatively lower can reduce your total balance and future interest payments. Beware of early repayment charges though.
- Fixed vs variable? If you are on a tracker or variable rate mortgage, consider a fixed-rate deal to switch to. This may start out more expensive but will make repayments more predictable and manageable in the long run.
- Cut non-essentials. Redirect any savings you make to paying down your loans.
- Explore debt solutions. Combining debts into one debt consolidation loan, for example, can reduce overall monthly payments.
- Balance transfers. Investigate whether you can transfer a credit card balance to a card with a lower rate. Moving balances to a 0% interest balance transfer card can freeze interest for over a year, giving you a window to pay down the principal sum.
- Build a financial buffer. An emergency fund to cover at least one month of essential expenses will help to insulate you against future financial surprises.
Now may also be a good time to seek advice; debt charities or a professional debt advisor can suggest more options for dealing with debts while the sun’s still shining.
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