How interest rate changes affect debt ?

[Yusra3]

When interest rates rise, it becomes more expensive to borrow money and carry debt. For those with variable-rate debt like adjustable-rate mortgages, credit cards, or some student loans, interest rate hikes directly increase the interest owed each month. With fixed-rate debt like most mortgages and auto loans, rising rates don't affect existing loans but make new debt more costly. This can diminish homebuying power and affordability for big-ticket purchases financed through loans.

On the flip side, when interest rates fall, variable debt becomes cheaper to service month-to-month, and new fixed-rate debt is less expensive to take on. Lower mortgage rates enable homebuyers to qualify for higher loan amounts. However, falling rates also reduce returns for savers holding cash and interest-bearing accounts. Managing and paying down debt becomes easier in a declining rate environment but comes at the expense of earning power on cash reserves. Interest rates profoundly impact both sides of the household balance sheet..

 

[Ramolak19]

Anyway this repayment of debt may be directly impacted by changes in interest rates. The cost of borrowing money goes up when interest rates rise, which raises monthly payments for existing debt. This may put a pressure on available funds and increase the difficulty of repaying debt. On the other hand, debt becomes more affordable when interest rates drop, which may result in lower monthly payments and make it simpler to manage and pay off debt over time.