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What does Spirit Airlines’ bankruptcy mean for you?
Spirit Airlines, the airline of choice for many budget travelers, filed for bankruptcy protection Monday, raising questions about the viability of no-frills airlines in the post-pandemic era, as consumer preferences shift toward more premium offerings.
Customers with plans to fly on the airline over Thanksgiving and beyond are also concerned about what the filing means for their upcoming trips, as well as airfares generally.
Spirit has entered into a restructuring agreement with its bondholders in order to reduce the airline’s debt and provide it with increased financial flexibility, Spirit said in an open letter to customers Monday. The longterm aim, Spirit said, is to provide its guests “with enhanced travel experiences and greater value.”
The airline, known for its bargain fares, said it expects to emerge from bankruptcy in the first quarter of 2025, “even better positioned to deliver the best value in the sky.”
Industry experts attribute Spirit’s financial woes in part to changing consumer preferences as they demand more amenities while flying.
“We can clearly see that consumer preferences have changed in favor of a more premium product, and the low-cost airlines are struggling,” Jungho Suh, management professor at George Washington University School of Business told CBS MoneyWatch. “They don’t want to see any added costs, they want an all-in, full-service offering.”
What if I am booked on a Spirit flight?
Spirit plainly states that customers with existing reservations can still use their tickets. Their flight credits and loyalty points are also still valid, and can be redeemed as usual. Customers may also make new reservations for future travel.
“The most important thing to know is that you can continue to book and fly now and in the future,” the airline said.
Additionally, Spirit customers can still benefit from the airline’s Free Spirit loyalty program, as well as accrue and redeem Saver$ Club perks and credit card terms.
Schedule modifications
That said, industry experts advise customers to keep a close eye on their upcoming bookings. That includes updating their contact information so that the airline can reach them with modifications to their flights.
“Make sure your contact information is up to date, and keep an eagle eye on your reservations,” Brian Kelly, founder of The Points Guy — a site focused on airline deals and travel rewards — told CBS MoneyWatch.
There’s no need to panic, Kelly said, but the airline is expected to trim its schedule, which could result in your flight time changing, or being canceled.
“They’re not going to stop flying tomorrow, but inevitably they’re going to emerge an even smaller airline after this process, so that means there are going to be some hiccups with routes,” he said.
Aviation industry consultant Robert Mann said some consumers who were accustomed to flying Spirit out of major airports may have to fly out of a smaller hub, as Spirit withdraws from major hubs served by legacy carriers.
“You could see that happen where Spirit decided to compete, and has now decided it wasn’t such a good idea,” he said.
What will happen to airfares?
Spirit and other low-cost carriers have helped depress airfares, even for consumers who don’t fly on budget airlines.
“Whether you like them or not, having ultra low-cost carriers is good for our overall aviation ecosystem and good for consumers, even if you never buy them,” Kelly said.
Spirit will emerge a smaller airline, which means there will be fewer low-cost flights on most routes, and airfares could rise across the board.
“The smaller Spirit is and the less routes they serve, the less pressure there will be on other airlines in those markets, resulting in overall higher fares,” Kelly said. “This isn’t good for consumers. There’s no positive side to this.”
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Borrowing from your home equity can be a wise way to improve your financial health, especially in today’s economy. For example, you can tap into home equity to fund home renovations that may improve your home’s value. Similarly, home equity loans and home equity lines of credit (HELOCs) typically offer lower rates than credit cards and other types of borrowing products, making them a useful option for consolidating debt and reducing interest costs. And with Americans sitting on an average of $319,000 in home equity currently, these loans may offer higher borrowing limits than other options.
Current economic factors, including inflation and interest rates, are also boding well for borrowers right now, making it an even better time to consider this type of borrowing. For starters, the Federal Reserve is confident enough in the downward inflation trend to cut the federal funds rate at the last three Fed meetings. While the Fed doesn’t set mortgage rates, the federal funds rate influences the interest rates lenders charge on their lending products. While not at pre-pandemic levels, interest rates on home equity loans and HELOCs are slowly improving. The average home equity loan interest rate is currently 8.41%, while the average HELOC interest rate is 8.52% (as of December 19, 2024).
Still, the only economic constant is change. Inflation increased slightly in October, and other factors could alter the borrowing environment going forward. With that in mind, choosing between a HELOC and home equity loan will depend on your financial goals and how these products respond to changes in the market. Let’s explore which of these two home equity options might make sense for your situation.
Start comparing your home equity borrowing options online now.
Why a HELOC could be better than a home equity loan in 2025
HELOCs work like credit cards, offering a line of credit that can be borrowed from multiple times (up to the credit limit). This type of home equity borrowing can be a useful option if you want to use funds as needed over time, as opposed to getting one large lump-sum payment like a home equity loan. For example, if you’re renovating your home with multiple projects, a HELOC lets you access funds as needed for each phase, helping you avoid borrowing more than necessary upfront.
Just remember, HELOC repayment terms usually start with interest-only payments for a set number of years, typically five or 10 years.
“This is for someone who wants a low starting monthly payment, but keep in mind you may not be paying off all the principal,” says Adam Spigelman, senior vice president at Planet Home Lending. “If you borrow $50,000 and you make interest-only payments for five years, at the end of five years, you’ll still owe $50,000.”
Also keep in mind that HELOCs have variable rates that are tied to an index such as the prime rate, which is typically around 3% higher than the federal funds rate. So if you anticipate the Fed’s rate-cutting trend will continue, a HELOC might save you money in the short term. On the other hand, you might think twice about getting a HELOC if you believe rates will increase during your repayment term.
“When that index rate rises, your monthly payment may also rise. That higher payment can leave you with less money in your pocket, which can make it harder to stay out of debt. If the higher interest rate comes at a time when you’re starting to do the principal repayment, it can lead to payment shock,” Spigelman notes.
Find out how affordable the right home equity borrowing option could be today.
Why a home equity loan could be better than a HELOC in 2025
If you’re looking for more predictable financing, you may prefer a home equity loan for its fixed interest rate and monthly payment that remains the same during the life of the loan, regardless of rate adjustments.
“A home equity loan is a fixed rate and doesn’t fluctuate based on what the Federal Reserve does,” says Jeremy Schachter, branch manager at Fairway Independent Mortgage Corp. “So when the rates come down, your fixed rate doesn’t go down.”
While the Fed’s ongoing rate cuts might reduce borrowing costs on HELOCs in 2025, a home equity loan might be a better long-term option if you expect rates to rise during your loan term.
Home equity loans are a great option if you need a large, lump-sum payment to fund a large expense. You might use one to fund a major home renovation, consolidate high-interest debt or even cover your child’s college tuition. Since home equity loans often have lower rates than private student loans, they may help you save money in the long run.
Should you borrow from your home equity now or wait?
Deciding whether to borrow now or wait until 2025 or later depends on your financial situation, goals and borrowing preferences. As Schachter explains, the type of loan you choose matters, as fixed-rate and variable-rate options affect how your monthly payments change over time.
“Depending on your needs and goals with the funds for the loan, it may make sense not to wait to take out a HELOC because it does change with rates changing. If you are looking for a home equity loan, it may make sense to hold off until next year if your projects or use of the funds can be pushed out,” says Schachter.
The bottom line
Heading into 2025, the choice between a home equity loan and a HELOC comes down to how stable you want your payments to be, and which direction you anticipate interest rates are trending. So, take time to weigh the pros and cons of each option and how they might impact your budget. Finally, remember that home equity loans and credit lines are secured by your home, so you should never borrow more than you need, and make sure the payments fit comfortably into your budget before signing for one.