by The Ascent Staff | Updated July 27, 2021 - First published on Nov. 20, 2018
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Back in 2015, interest rates were near zero. Wewere living in a borrower's paradise.
Back in 2015, interest rates were near zero. We were living in a borrower's paradise.
But times are changing. Since December 2015, the Federal Reserve has increased interest rates six times, most recently from 1.5% to 1.75%. They have plans for three more increases this year, as well as multiple increases in both 2019 and 2020.
In general, this is good news. The Fed stated that the outlook for the U.S. economy has strengthened recently, and it forecast even lower unemployment rates and increased GDP growth over the next couple of years.
However, because the interest rate set by the Fed impacts consumer interest rates, the cost of borrowing will continue to go up. Whether you have debt or are planning to borrow soon, this is not a reason to worry -- but it is a reason to prepare.
Tips and tricks from the experts delivered straight to your inbox that could help you save thousands of dollars. Sign up now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
Fixed-rate loans are unlikely to change in the near future. The Fed's rate hikes will more directly affect consumers with variable debt.
Instead of panicking over a steadily increasing interest rate, take action. Here are some tips on how to prepare yourself financially.
Make it a top priority to pay off any variable debt, particularly credit card debt, while interest rates are still relatively low. Put any extra money, such as your 2018 tax return, toward your debt. Use the "debt avalanche" method to repay your highest-interest rate debts first before those rates get even higher.
You may also want to consider consolidating your debt at a lower interest rate. If you have a good credit score, you can even open up a credit card with a 0% introductory APR on balance transfers and transfer a chunk of your debt to be paid off interest-free for up to 21 months. Most cards will make you pay a 3% balance transfer fee, but you may still end up saving a significant amount of money. With interest rates on the rise, some of the best balance transfer and 0% intro APR deals are likely to disappear soon. Citigroup (NYSE: C) CFO John Gerspach stated on a call with investors that the company plans to shorten or remove promotional offers as interest rates continue to rise.
Be proactive and look for lower interest rates. You'll need a good credit score and a history of on-time payments, but this could be as easy as calling up your card issuer and negotiating a lower rate. There is a surprisingly high chance that simply calling your bank to ask for lower fees an interest rates will get you exactly that.
You can also shop around with other credit card providers. Keep in mind that actually applying for a credit card will result in a "hard inquiry" on your credit report, which will lower your credit score temporarily, so wait until you're certain. Credit unions are a great option, as they are not-for-profit institutions that pass off profits to members in the form of lower interest rates and fees. Lock in a lower interest rate now, even if you don't have outstanding debt.
The most recent increase in the federal funds rate was only 0.25%, but with at least six more predicted by the end of 2020, interest rates will only continue to rise. If you already know you're going to borrow money in the near future, and you're financially ready, go ahead and do it now.
There are still many credit cards offering 0% introductory APRs if your credit is good. These are a great way to pay off a major purchase, as long as you can pay off the balance in full before the introductory period ends. As mentioned above, these offers might not be around for much longer.
If you do have an adjustable-rate mortgage, now is a good time to think about refinancing into a fixed-rate mortgage. Locking in a fixed rate now will prevent your interest rate from rising with the federal funds rate, and it may give you some added peace of mind. However, remember that should the interest rate fall dramatically in the future, you will only be able to take advantage of it if you qualify for refinancing. Make sure you do your research, as fixed-rate mortgages aren't the best option for everyone.
Don't rush into any financial decision out of fear. While interest rates are likely to rise for the next couple of years, no one knows what they'll be doing 10 or 20 years from now. The best advice in almost any financial situation is to keep your mind on the long run.
If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read The Ascent's full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.