FOX Business’ Madison Alworth speaks with Bankrate.com senior analyst Ted Rossman about why sooner or later consumers will have to deal with their credit card debt.
The Federal Reserve hiked interest rates by 0.75% this week as policymakers act more aggressively to fight inflation, which is at a 40-year high and beating American consumers.
But experts say the rise in interest rates, which is the biggest rise since 1994, could also impact personal finances in a number of ways.
Here are some smart money moves you can make now that could put you in a better position as interest rates rise:
Secure your mortgage interest
Whether you are preparing to buy a home or already have a mortgage, make sure your interest rate is fixed and non-variable.
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“It really makes sense to be aware of this, because it seems that interest rates are going to be higher than we’ve been used to for the past decade or more,” said Robert Gilliland, managing director and senior wealth advisor at Concenture Wealth Management .
A home is listed for sale on Oak Street on May 17, 2022 in Patchogue, New York. (Steve Pfost/Newsday RM via Getty Images/Getty Images)
“So interest rates will be higher [people] need to be aware that it might make sense to look at refinancing a mortgage,” Gilliland told FOX Business, noting that ARMs could go up “a lot” and that in some cases it might even be prudent to get out of an ARM to refinance out when the fixed rates are higher than what an individual is paying now.
“Manage your payments, it can make sense to set installments,” he says. “Same goes for your home equity lines of credit.”
Pay off credit card debt and take steps to reduce interest paid on balances
If you have credit card debt that’s currently mounting amidst sky-high inflation, make sure you put a plan in place to pay it off as interest rates will continue to rise.
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“With a credit card that has a balance, you want to be really, really serious about paying it off because those interest rates are going to keep going up,” says Gilliland.
Fan of plastic credit cards is in woman’s hand. Concept of cheap bank offers for consumers (iStock / iStock)
In the meantime, try to either renegotiate the APR or move that debt to a card with a lower or zero interest rate. He suggests checking out a site like NerdWallet to find the best deals on transferred funds.
Shop for savings accounts with higher yields
Gilliland says one positive thing about rising interest rates is that “Americans now have a lot of money in cash” and “their idle cash will start earning a little bit more than it used to.”
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Greg McBride, Bankrate’s chief financial analyst, agrees, telling FOX Business’s “Cavuto: Coast to Coast” that the benefits of higher interest rates are that savers benefit and recommends that people look around to see the to find the best rates.
Bankrate’s Chief Financial Analyst, Greg McBride, explains Cavuto: Coast to Coast.
“The yields have been so low for so long,” McBride told host Neil Cavuto. “Things have turned a corner in that for most of the past three years it has been a situation where yields on savings fell and then inflation set in. Now we’re in a situation where over the next year or two we expect interest rates to rise and hopefully inflation to come down at some point.”
Reevaluate asset allocations
Gilliland recommends meeting with their financial advisor to evaluate asset allocations and making sure they’ve factored in stress tests that project an environment of higher inflation — particularly for people planning to retire soon or within the past decade have retired.
As for the stock market, Gilliland predicts that “we’re in for a roller coaster ride” until there is more clarity on inflation, interest rates and geopolitical events.
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Given the current market volatility, he advises staying diversified and “not trying to catch a falling knife.”
Talia Kaplan of FOX Business contributed to this report.