Everything you need to do before interest rates go up
With inflation leading 7% and consumer confidence at 10– low year, it is a foregone conclusion that the Federal Reserve will increase the federal funds rate in the near future. This could be at their meeting in Marchor it could happen even sooner to a emergency meeting, but it’s coming. The first hike will likely be followed by a series of hikes that could take the policy rate from its current level of 0.08% to 1.6% or more by the end of 2023. This would mean that the banks’ prime interest rate (the best rate at which they will lend money) would likely end up around 4.6%.
The rate change will most directly affect credit card interest rates, home equity lines of credit and other types of variable interest debt, as these rates are based on the banks’ prime rate, which changes much in tandem with the Fed rate. Other types of loans (mortgages, car loans, etc.) have different influencing factors that affect their interest rates, but the ripple effect of a rate hike would likely increase the cost of all borrowing.
Here are some things for consumers to consider in order to prepare for higher interest rates in the near future.
Do not worry: Rising interest rates are not (necessarily) a bad thing. “From an investment perspective, interest rates rise when the economy is generally doing well,” Daniel Milan, managing partner of Cornerstone Financial Services, told CNBC. “People are spending…if you look at it from a different angle, it means positive things are happening.”
Call your credit card company and ask for a lower rate: According to a CreditCards.com survey, 84% of the time, people were able to lower their credit card interest rate simply by calling their issuer and asking. is now a good time to make that call.
“If you cut the rate, it will be a little more than a quarter of a percentage point that the Fed will raise rates, so you will come out on top,” Matt Schulz, chief credit analyst at LendingTree, told CBS.
Refinance your home loan: Although mortgage interest rates are not directly linked to the prime rate, this does not mean that they do not increase, too much. According to Freddie Mac’s Data, 30-year mortgage rates rose from 2.73% a year ago to 3.69% last week. This is still a historically low rate, but many economists expect it to go further In the coming months. A Zillow survey indicated that approximately 78% of American households haven’t refinanced their home in the last year. If you’re eligible for a re-fi, you should consider turning it on now.
Make a big purchase: If you are planning to make a major purchase on credit, it may be a good idea to pull the trigger now and lock in lower interest rates, provided that it is corrected. Prices are likely to continue to rise a bit anyway, so even spending the money makes sense. Borrow money for a yacht, a car or that second home you had your eye on could end up being more expensive if you buy it in a few months than if you buy it now, Mr. Moneybags.
Consolidate your debt: If you’re like me and think more about how best to manage your credit card debt than whether it’s a good time to buy a boat, you should consider whether a debt consolidation loan is right for you, and try to lock it in before rates go up. You might also consider deferring your debt to a credit card with balance transfer before these rates increase, also.
Refinance student loans: This is a particularly good time for people with student loans. Federal student loan payments and interest suspended until May 1, and more federal relief might arrive (probably not, but you never know). If you paid for your education with private loans, student loan refinance rates have been at or near recent all-time lows. Consider taking advantage of these discounted rates while they are available.
Consult a financial advisor about your portfolio: Most financial experts usually advise consumers with 401(k)s or IRAs to invest in long-term growth and leave their funds alone, but now is the time to review the details of your portfolio and discuss any concerns, questions or potential changes with a professional financial advisor.