Before the Fed raises interest rates again, there are some cash moves to make

Before the Fed raises interest rates again, there are some cash moves to make

The Federal Reserve hiked its benchmark rate by a half-point on Wednesday to curb inflation, which is at its highest level in 40 years. In addition, Fed Chair Jerome Powell hinted that more half-point rises will be considered at all of this year’s meetings.

Americans are seeing rising interest rates for the first time in years.

As interest rates rise, financial experts advise people to make several crucial financial measures to improve their financial status. Paying off debt and bolstering personal budgets to be able to endure any economic shocks are two examples.

“If your New Year’s resolution was to build a household budget, it may need a refresh and a review,” said Cathy Schaeffer, a certified financial planner, vice president and family advisor manager at Baker Boyer in Walla Walla, Washington. Now is “a chance to really look at your personal budget and identify some ways to pay down your debt more aggressively as these rate hikes are expected to continue.”

Pay down variable-rate debt

Certain borrowers should be especially careful right now.

That includes anyone looking to buy a home, is shopping for a car or is carrying credit card debt, according to CFP Lauren Anastasio, director of financial advice at Stash.

“If you are shopping for a home, you might want to ask your lender if you can lock in your rate now,” she said. “Sometimes the lender, for a flat fee will allow you to lock in today’s rate even if you’re not going to close for another few months.”

Some borrowers are considering adjustable-rate mortgages, which offer lower initial rates but eventually revert to market conditions. People who had ARMs and are nearing the end of that period may want to consider refinancing to a fixed rate. Car shoppers may want to stick with newer models and avoid the used car market, where prices have jumped the most. Taking time to shop for the best deal you can find is also in your best interest.

“There’s still a lot of value out there,” said Jacqui Kearns, chief brand and strategy officer at Affinity Federal Credit Union in New Jersey, adding that while rates are rising, they’re still historically low. People carrying credit card debt may also want to contact their lenders to see if they can strike a deal.

“I always recommend that folks actually call their lender and see if they’re able to lower their interest rate,” Anastasio said. It may also make sense to consolidate credit card debt into something with a fixed rate, as this kind of debt is the most sensitive to rate hikes and often has the highest interest – right now, the average interest rate on a new credit card is nearly 20%, according to LendingTree.

Paying off debt entirely is also a good idea, if possible. Kearns recommends tackling those cards have relatively low balances. “If you have that nagging $200 or $300 [debt] out there, just pay it off,” she said.

Prepare for the future
Paying down debt is just one way to set yourself up for financial success in the future, something that’s especially important as people weigh the risk of a recession. “This is a very delicate dance that the Fed is conducting,” said Anastasio, adding that while the central bank will do their best to tamp down inflation without halting the economy too much, there’s a lot of factors that are out of their control, such as uncertainty stemming from the war in Ukraine.

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