In May 2022, the Federal Reserve raised interest rates. The Federal Reserve is the central bank of the United States and it sets the overnight charge or benchmark rate. This is the rate at which financial institutions can lend to each other. The rate increase that occurred was the largest since 2018 and was the second rate increase of 2022. More increases are expected later in the year.
When interest rates rise, many aspects of your finances are affected. Variable-rate debt becomes more expensive, for example, and your savings account rate could go up. Mortgage rates have also risen and Federal Reserve actions will accelerate that.
When interest rates rise, it is especially important to make wise financial choices. Finance guru Suze Orman has some advice to help you do just that, as she offered tips for consolidating your financial situation when the Fed raised rates in March. Here’s what Orman has to say.
Research your options if you have unpaid credit card debt
Since credit card debt is usually variable rate debt, rising rates mean that the interest charges on your credit card balance will increase. Therefore, Omran believes it is important to “research your options” to try to minimize your borrowing costs.
She has two possible suggestions for trying to deal with rising rates. First, she simply suggests calling customer service and asking for a rate reduction. “Few people ask,” she said. “But surveys show that when they do, they usually get a discount.”
She also urges borrowers with strong credit scores to consider applying for a new credit card — ideally one with an introductory balance transfer offer. These offers usually give you the option to pay 0% for a limited time after you open the card and transfer your existing credit card balance to it.
Reducing your rate to 0% can make paying much easier, especially compared to dealing with a rate increase.
Prepare for an increase in car loan rates and mortgage rates
Orman also warned that auto loan rates will rise, whether on new loans or on existing variable rate loans. And the same goes for new mortgages and adjustable rate mortgages.
“If you’re looking for a new home, you have to budget for the potential for higher rates,” Orman said. “And if you’re about to make an offer, you might consider locking in your interest rate with your lender, to protect against drifting even higher in the coming weeks.”
Don’t assume your savings account returns will increase dramatically
Finally, Orman says you shouldn’t get excited about the possibility of earning more interest on your savings accounts. While your rate may “increase” over time, she said “these changes tend to be slow and don’t fully reflect the magnitude of any given increase in fed funds.”
Instead of spending more money on savings just because rates go up, she thinks the amount you have invested in a savings account should be determined by your financial needs rather than the hope of making a profit. profit.
Orman is aware of these issues, and it’s worth following his advice if you have high-interest credit card debt, as well as being prepared for higher mortgage rates so you can adjust. your home buying budget accordingly. If you accept the realities of what rising rates can mean for you, you can make smart choices so that higher finance charges don’t hurt your long-term finances.
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