The Federal Reserve Just Raised Rates. Here's How Suze Orman Says to Handle It
Could this Suze Orman advice help protect your finances as rates increase?
- The Federal Reserve just announced the largest interest rate increase since 2000.
- The benchmark interest rate is going up a half percentage point.
- Suze Orman has provided tips on money management as rates increase, including recommending a balance transfer.
On Wednesday, the Federal Reserve announced it was raising its benchmark interest rate by a half percentage point. While rates were between 0% and 0.25% during the heart of the pandemic, the Federal Reserve raised rates in mid-March and again in May. The two increases -- the first since 2018 -- have brought the federal funds rate to between 0.75% and 1.00%.
Unsurprisingly, such a big increase in the federal funds rate will affect your finances in important ways. You'll want to make smart financial decisions as rates rise, and some advice from Suze Orman could potentially help you decide what actions to take to protect your finances as rates rise. Here's what Orman suggests.
Make a plan for dealing with credit card debt
As Orman explains, credit cards charge variable interest rates on unpaid balances. As a result, an increase in the federal funds rate will mean you are charged more credit card interest. This will make paying back any money you owe on your credit cards more expensive.
She has two suggestions for coping with this. The first is to call your card company and ask for a lower rate. "Few people ask, but surveys show that when they do, they typically do get a reduction," Orman explained.
Second, she also advises taking advantage of a balance transfer offer if you're eligible for one. Balance transfer cards allow you to pay a 0% introductory rate on a transferred balance -- usually for a period of around a year.
If you can move money from a card charging a high interest rate to one with a 0% rate, more of your money will go toward repaying the principal and debt payoff should be cheaper. However, Orman warns you'll need a "solid FICO credit score" to be eligible.
Understand the impact on other loans
It's not just your credit cards that could be affected by rising rates. Orman warned that car loan rates tend to move along with the federal funds rate. This means if you have a variable-rate car loan or you plan to borrow with a fixed-rate loan in the future, you'll pay more. And these added borrowing costs come on top of the major increase in the price of new and used cars that has occurred this year due to high demand and supply chain issues.
The good news is that existing homeowners with fixed-rate mortgage loans won't be affected since their rate is locked in. However, those who are thinking of buying a home in the future won't be so lucky. "If you are in the market for a new home, you need to budget in the potential for higher rates," Orman warned. "And if you’re about to make an offer, you might consider locking in your interest rate with your lender, to protect against it drifting even higher in the coming weeks."
This advice from Orman on how the Federal Reserve could affect borrowing costs is important. If you have credit cards or are planning to take on a car or home loan soon, you should seriously consider heeding her words and planning for higher rates so you can adjust your budget to account for the impact.
Alert: highest cash back card we've seen now has 0% intro APR until 2024
If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Our Research Expert
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.