What do rising interest rates mean for your finances? Rates have been rising since March of 2022 when the Fed began an aggressive campaign to attempt to stabilize the economy and fight inflation. Rising rates make borrowing money more expensive, but they also make saving rates more attractive. Here is a quick look at how to navigate a rising rate environment.
Debt
If you have debt, then now is a good time to review it and create a plan to pay it off or move it. The debts that are the most concerning are ones with a variable rate. Credit card debt is usually immediately affected when rates rise. So too is debt linked to HELOCs and variable rate mortgages.
Fixed rate debts such as traditional mortgages and student loans won’t change, but if you have debts with variable interest rates, now would be a good time to create a plan to eliminate them or prioritize them for repayment.
Moving variable rate debt to a fixed rate is also an option. Locking in your variable rate mortgage to a fixed rate one could make sense depending on rates and your situation. You can start by checking here to see if a refinance makes sense for you.
Credit card debt too, can be moved to either a card with a lower rate or to a personal loan.
Saving
If you are saving cash, then rising rates can be good news. Savings rates for the money market and saving accounts have seen considerable rate increases recently. So too have rates for CD’s and Treasuries.
Remember that the high inflation environment we are currently in erodes your purchasing power, so maximizing your rate of return on your money is crucial.
Other Considerations
A rising rate environment will make buying a home more expensive, assuming you will be financing. The good news is that prices have been cooling, and buyers have more room to negotiate with sellers.
If you have stocks, then you are likely down this past year. Expect that to continue, as higher rates can squeeze consumer spending and corporate profits. The best advice here is to stay the course and keep consistently investing in quality stocks and funds over a long period of time.
Wrapping up
What do rising interest rates mean for your finances? It depends on how your debts and your savings look. Rising rates can be bad for debt if it is at a variable rate. If it is, then now is a good time to investigate moving it to fixed-rate terms or paying the debts off. Your cash holdings will see a bump in returns due to higher interest rates. It is also a good time to shop for the best rates to maximize your returns. Doing due diligence now will help you stay on top of the current economic climate.
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Writer and Investor. Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.