Everything You Must Do Before Interest Rates Rise
With inflation above 7% and consumer confidence at its lowest level in 10 years, we can assume that the Federal Reserve will raise the federal funds rate in the near future. It may be at their meeting in March , or it may be earlier, at an emergency meeting , but it is coming. The first hike is likely to be followed by a series of hikes that could push the Fed’s rate from its current 0.08% to 1.6% or more by the end of 2023 . This would mean that the banks’ prime interest rate (the best rate they would lend) would likely be around 4.6%.
The rate change will most directly affect interest rates on credit cards, home equity lines of credit, and other types of variable rate debt because these rates are based on banks’ prime interest rate, which largely moves in tandem with the Fed’s rate. Other types of loans – mortgages, car loans, etc. – have different influencers that affect their interest rates, but the ripple effect of higher rates is likely to raise the cost of all loans.
Here are some things consumers should consider in order to prepare for higher interest rates in the near future.
Don’t worry : rising interest rates are not (necessarily) a bad thing. “From an investment standpoint, interest rates go up when the economy is generally doing well, ” Daniel Milan, managing partner at Cornerstone Financial Services, told CNBC . “People are spending… if you look at it from a different perspective, it means that some positive things are happening.”
Call your credit card company and ask for a lower interest rate . According to a survey conducted by CreditCards.com, 84% of the time people could lower their credit card interest rate simply by calling their issuer and asking for it. Now is the right time to make that call.
“If you get a rate cut, it will be much more than a quarter of a percentage point that the Fed is going to raise its rates by, so you will come out ahead,” Matt Schultz, chief credit analyst. at LendingTree, CBS said .
Refinance your home loan: While mortgage interest rates aren’t directly related to the prime rate, that doesn’t mean they aren’t rising either. Rates on 30-year mortgages rose from 2.73% a year ago to 3.69% last week, according to Freddie Mac . This is still historically low, but many economists expect it to rise in the coming months . A Zillow survey found that about 78% of US households did not refinance their homes in the past year. If you are eligible for a resubscription, you should consider starting it now.
Make a big purchase . If you are planning to make a large purchase using credit, it would be a good idea to pull the trigger now and lock in a lower interest rate , as long as it is fixed. Prices will likely continue to rise anyway, so even spending cash makes sense. Borrowing money for a yacht, a car, or that second home you have your eye on may be more expensive if you buy it in a few months than if you buy it now, Mr Fatty.
Consolidate your debt . If you’re like me and think more about the best way to manage your credit card debt than when is the best time to buy a boat, you should consider whether a debt consolidation loan makes sense for you. and try to block it before the rates go up. You may also want to consider transferring your debt to a credit card with a balance transfer before these rates also go up.
Refinance student loans: This is a particularly good time for people with student loans. Federal student loan repayments and interest are suspended through May 1, and additional federal benefits may come (probably not, but who knows). If you paid for your studies with private loans, student loan refinancing rates have recently been at or near record lows. Consider taking advantage of these lower rates while they’re available.
Consult with a financial advisor about your portfolio . Most financial experts generally advise consumers with a 401(k) or IRA to invest in long-term growth and leave their funds alone, but now is the time to review your portfolio details and discuss any concerns. , questions or possible changes with a professional financial advisor.