Fed Chair Jerome Powell raised the interest rate this week by another 0.5%. In general, this can be seen as a negative. When interest rates rise, the cost of borrowing money increases. Mortgages, home equity, and car loans, along with other types of lending become more difficult and expensive to attain. While the common practice can be to grin and bear it, for a lot of consumers, that is just not an option. But for those struggling with debt, or already in a debt resolution program, it can help them get a little bit closer to their debt-free goals. Here are some ways to use those rate hikes to your advantage and stay out of debt:
1. Make money while saving money
Take advantage of those rate hikes by moving money into a higher interest-bearing savings account. Consumers can quickly research online some of the best financial institutions to move their money into. By gaining just a little more interest on hard-earned money, one may be able to achieve their budgetary goals just a little bit sooner. Remember, every little bit counts!
2. Consider moving high-interest credit card debt to lower interest credit cards
Have you been receiving those 0% balance transfer offers? Now may be the time to consider transferring that debt before another rate hike. Not only can consumers save money on interest but they may also be able to allocate more monies towards principal and reduce their amount of debt more quickly. It may also be wise to consider refinancing any private variable rate loans into a lower fixed rate loan. Be sure to research any fees required to make such a move, but now may be the time before rates climb even higher.
3. Spend less, save more
It’s not a coincidence that consumers spend less when interest rates rise. If consumers can no longer afford home equity loans, then they are spending less on home improvements. Likewise, if it costs more to borrow money, such as with credit cards, consumers tend to step back from spending and hold on to their hard-earned money a little bit tighter. Meanwhile, those hard-earned bucks can be poured back into those higher-earning savings accounts we mentioned earlier. It doesn’t hurt to let those dollars work for you a little bit. So don’t feel bad about foregoing that weekly trip to the mall. Those saved dollars can help get you out of debt sooner.
4. Want to purchase a home? start planning!
When interest rates rise, the price of housing begins to slow and eventually drop. While it may cost more to borrow those mortgage funds, this may be offset by lower housing prices. What one couldn’t afford last year, may become more attainable next year. Keep track of rates and housing prices in your area. Set a goal and start working towards that goal with savings and debt consolidation. Those rate hikes may work to your advantage and make homeownership more feasible for you in the near future.
While we may not be able to control the decisions of those in charge of our country’s economy, we can make wise choices based on those decisions. The ability to bend to changing economic environments can allow consumers to feel in charge of their financial health. By better understanding how interest rates affect the ability to purchase and borrow money, there is a better understanding of how to make financial transactions that help reach your goals. As always, if you need help, reach out to your financial advisor or debt resolution company for counsel.
