The Federal Reserve raised interest rates by 0.75% this week as lawmakers move more aggressively to combat inflation, which is at its highest in 40 years and is battering American consumers.
But experts say the rate hike, which is the biggest increase since 1994, could also hit personal finances in a number of ways.
Here are some smart money moves to make now that could put you in a better position as rates rise:
Set your mortgage interest rate
Whether you’re getting ready to buy a home or already have a mortgage, make sure your interest rate is fixed and not adjustable.
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“It really makes sense to be on the lookout because it looks like interest rates are going to be higher than we’ve been used to for the last decade or so,” says Robert Gilliland, managing director and senior wealth advisor at Concenture. Wealth Management.
“Interest rates are going to be higher, so [people] they’ll have to be aware that it might make sense to look at refinancing a mortgage,” Gilliland told FOX Business, noting that ARMs could go “a lot” and that in some cases it might be prudent to refinance with an ARM even if fixed rates they are higher than what an individual is paying now.
“Manage your payments, it can make sense to lock in rates,” he says. “The same thing would happen with 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, which is currently mounting amid skyrocketing inflation, make sure you have a plan in place to pay it off because interest rates will continue to rise.
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“With a credit card that has a balance, you want to be very serious about paying off those balances because those interest rates are going to keep going up,” says Gilliland.
In the meantime, try renegotiating the APR charged on your balances or moving that debt to a card with lower or no interest. He suggests checking out a site like NerdWallet to find the best deals on offer for transferred balances.
Buy higher yielding savings accounts
Gilliland says that one positive thing about rising interest rates is that “Americans now have a lot of cash” and “their idle cash will start earning a little more than it has been.”
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Bankrate Chief Financial Analyst Greg McBride agrees, telling FOX Business “Cavuto: Coast to Coast” that the upside of higher interest rates is that savers will benefit, recommending that people shop around for find the best rates.
“Yields have been so low for so long,” McBride told host Neil Cavuto. “Things have taken a turn in the sense that, for much of the last three years, it was a situation where savings yields fell and then inflation skyrocketed. Now we’re in a situation where, Over the course of the next year or two, we expect interest rates to go up and hopefully, eventually, inflation to come down.”
Reassess investment allocations
Gilliland recommends that people meet with their financial advisor to assess investment allocations and make sure they’ve taken into account stress tests planning for a higher inflation environment, particularly people who plan to retire soon or have retired in early retirement. the last ten years.
As for the stock market, Gilliland predicts “we’re going to be on a roller coaster ride” until there is more clarity on inflation, interest rates and geopolitical events.
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His advice, given the volatility of the market right now, is to stay diversified and “don’t try to catch a falling knife.”
Talia Kaplan of FOX Business contributed to this report.