The Federal Reserve is Planning More Interest Rate Hikes This Year. Make These Money Moves Now
The Federal Reserve is Planning More Interest Rate Hikes This Year. Make These Money Moves Now
In an effort to hedge against inflation, the Federal Reserve recently raised its benchmark interest rates three-quarters of a percentage point (or 75 basis points), which was the most aggressive hike since 1994. Fed Chairman Jerome Powell has cautioned that additional increases are all but inevitable. Read on for some key money moves you can make now in order to position yourself in a better financial situation as rates rise.
Tackle Credit Card Debt
Rising interest rates mean that your credit card debt will cost you more each month. Aim to pay them off, starting with the cards that have the lowest balances first. You can also try calling your lenders to ask if they’re able to lower your interest rate. Additionally, look into consolidating your credit card debt by transferring the balances to a card with a 0% introductory APR period, typically 12 to 24 months. This move enables all of your payments to go toward knocking out the principal debt during the introductory period without the hindrance of interest charges.
Bolster Your Cash Reserves
The Great Recession of 2009 saw the unemployment rate get to 10%. It took, on average, 8 to 9 months for those affected to recover. Should things get as bleak in the coming future, a substantial emergency account would allow you to buy some time to figure out your best steps to move forward. Think about reexamining your budget to allocate more into savings now with a goal of hitting the recommended reserve of six to nine months. Start by cancelling any recurring subscriptions you don’t use or need, and call billers (from utility companies to insurance companies) to see what they can do to lower your bills. They may be able to offer discounts or promotions.
Stay the Course on Investing
If you have more than 10 to 15 years until retirement, history has shown that it’s best to ride out the market ups and downs. For example, during the 2008-09 financial crisis, those who stayed invested in mutual funds and ETFs had higher account balances by 2011 than those who decreased or stopped their contributions. Also keep in mind that yields and expected returns from other types of investments (CDs, corporate bonds, stock dividends) will rise as interest rates rise. A period of rising interest rates may actually be a great time to invest.
Keep an Eye on Your Credit Score
As interest rates increase and banks invoke tougher lending rules, it may be more challenging for borrowers to access credit. A strong credit score (700s or higher) is essential in order to qualify for the best loan terms and rates. If you need to improve your credit score, work on paying down high-balance debts. You should also review your credit report and dispute any errors.
Stay Smart About Spending
It might seem like common sense, but now is the time to review your spending and saving habits, and make adjustments where needed. We’re seeing prices increase from the gas pump to the grocery store, so be sure your budget reflects this change.
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