Pay off expensive debts

“The primary thing for good financial health is to lower your debt,” Swedbank private economist Arturo Arques told The Local, describing the past two years of high interest rates and high debt as an “ordeal” for many.

“I think the lesson that households have learned is that high debt is not good when inflation rises.”

Paying off debts with high interest rates is especially important now, as the budget includes plans to scrap a tax rebate for interest costs on unsecured debts, essentially loans without collateral, like credit card debt or consumer debt. Under the new rule, the current rebate would be cut in half from January 1st 2025 and scrapped entirely from 2026.

Currently, most people can reclaim 30 percent of their interest costs back on the first 100,000 kronor you pay in interest over a year, and 21 percent on anything over 100,000 kronor. This rebate will still apply to secured debts, like mortgages or car loans.

“It’s one thing to borrow money for buying a house, because it’s reasonable to expect that the price of a house will go up over time. But if you borrow money because you want to take a trip to Spain or buy clothes or go to the pub and pay with your credit card, it’s much more expensive,” said Arques.

Despite the fact that more than 80 percent of Swedish household debt is mortgages, the other 20 percent is much more likely to cause problems for individuals.

“This 20 percent, nearly half of the total interest rate people pay goes to that type of credit, and a lot of people have problems. People are struggling from that type of debt, not from mortgages,” he said.

“By making it more expensive, the government hopes that people will be more reluctant to borrow money for that type of consumption.”

Although interest rates are going down, Arques still advises people with this kind of debt to focus on paying them off.

“You’re still going to be paying a lot because they’re very expensive. So the main task for next year should be to get rid of that type of credit.”

May be harder to get a higher salary raise

Although you may be considering trying to negotiate a higher salary this year to cover costs, you should be prepared for the fact that this could be more difficult than expected.

“It’s harder to get a higher salary if inflation goes down,” Arques said. 

“In nominal terms you can’t expect as much of a raise as earlier, so the most important thing now is to understand that you need margins in your finances. You can’t live from hand to mouth. You need to build a buffer.” 

READ ALSO: How will Sweden’s new budget affect foreign residents?

Even if you find yourself with more money in your pocket following the government’s tax cuts, it could be a good idea to save it, rather than be tempted to splurge.

“I think many people have realised that they have borrowed too much,” Arques said. “And having too much debt is not fun.”

“Remember what it was like to not go out to restaurants, say no to your friends when they invite you out, not be able to travel, say no to your children because they want something you can’t afford because of the high debt.”

Savers are also set to gain from the government’s new budget, with any savings below 150,000 kronor in ISK or KF accounts becoming tax-free from next year. From 2026, this limit will be raised to 300,000 kronor.

What about the krona?

Arques is confident that the krona will increase in value over the next year or so, which is good news for those of us living and earning in Sweden.

“Government finances are strong and we think that growth will increase faster in 2025 and 2026, and that the economy will get stronger. When that happens, more get jobs and less are unemployed, so more can save and put money into amortisation.”

For people who earn a salary or have assets in another currency, Arques added that it’s a good idea to make sure any debts are in the same currency as your income.

“It’s a good rule of thumb. If you buy a Swedish house – let’s say you move to Sweden to work and buy a house there – you should make sure your debt is in kronor, and it’s even better for your salary to be in Swedish kronor too. And the opposite if you move away from Sweden.”

He does, however, warn against trying to perfectly time the point at which the krona’s value will increase.

“Never speculate in currencies, if you’re not a professional. As a small saver, never do it. It’s really, really hard.”