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In June of 2022, the US Federal Reserve announced the most significant increase in interest rates since 1994. This was swiftly followed by a further 0.75% point rise in July. While the claim is that this will help fight inflation, it doesn’t seem to be working, and most of us are dealing with this increase alongside a much higher overall cost of living.
This isn’t just an American problem. Similar rises in interest rates, and inflation, are happening in the UK, the rest of Europe, and across the world. So how should we be dealing with rising interest rates? Is there anything we can do about debt? And for those of us fortunate enough to have savings, what’s the best move right now?
Check Your Credit Cards
When the federal interest rate increases, so does the interest rate on most types of consumer debt, and this can be seen within one or two billing cycles when it comes to credit card debt. Seeing as the average American carries at least some credit card debt, this is definitely something you might need to address.
Your credit card company should contact you before they change the terms on your card and raise your rate, so you will be warned. That might be a good time to start looking for a card with a lower interest rate. The average APR offered in the US, when it comes to new credit card applications, is now 20.82%, and that will depend on your credit rating, so those with a low credit score can expect to be paying much more: sometimes over 26%.
If you’re applying for a new card anyway, now might be the right time to look at 0% cards. It sounds too good to be true, but in a world where credit card companies are eagerly vying for new business, many of them will offer you a 0% interest rate on new purchases, or even on a balance transferred from an existing card, for a limited time.
So what’s the catch? We’ve already mentioned it. The 0% interest rate is for a limited time. This could be six months, twelve months, or even longer. However, credit card companies aren’t doing this to help you out. They’re banking on the fact that you won’t pay the card off within the interest-free period, and you may find that the interest rate that kicks in at that point is even higher than average.
If you’re going to try this tactic, you’ll want to:
- Have a plan to pay off the full amount and clear the card before the interest rate applies.
- Make sure you make the minimum payment each month – there’s no interest fee, but late fees still apply.
- Have a backup plan, such as moving the balance to a new card if you haven’t paid it off (but be aware that constantly juggling a balance by applying for new cards could negatively impact your credit score).
- At the very least, check that the interest rate that kicks in on any unpaid balance in the future is not an extortionate one.
Check Interest Rates on Other Debt
It’s not, of course, just credit cards that are affected by interest rate hikes. Other debt including mortgages, personal loans, and car payments can also become more expensive. There may be fewer options here, but it never hurts to talk to your lender and see what they can do to make any payments more affordable for you.
Just as with credit cards, there may be other lending products that are offering a more favorable interest rate that you can switch to, the chance to refinance, or the opportunity to consolidate some of your debt to ensure lower monthly payments. All these options come with pros and cons so it is vital to look at all the terms and conditions carefully and advisable, as always, to consult a financial professional before making any drastic moves.
Check Interest Rates on Savings
In the midst of all these national interest rate hikes, I, for one, became aware that while the companies I hold credit cards with were eagerly informing me of interest rate raises, my bank, at which I hold an interest-bearing savings account, was notably quiet. Shocking, I know.
On doing a little digging, I did find out that while bank interest rates are still woefully low, there were some new account options I was eligible for, that came with a slightly higher rate than the one I’m receiving. If that’s the case for you, it may well be worth changing accounts, depending of course on the amount of savings you hold.
Financial gurus are often keen to impress on us that saving is for chumps. Money should be invested not saved, if it’s to grow at a decent rate, especially in times of high inflation. However, few of us feel comfortable without some cash on hand, especially in uncertain times, and some money, such as our emergency fund, should ideally be in a saving account that can be easily accessed. If yours is, make sure you’re at least on the best rate available for the type of account you need.
About the Author
Karen Banes
I’m a freelance writer specializing in online business, personal finance, travel and lifestyle. I also work as a content creator for hire, helping brands and businesses tell their stories, grow their audiences, and reach their ideal customers. I’ve lived, worked and studied in six countries, across three continents. Stop by my blog TheSavvySolopreneur.net to learn how to run your own (very) small business on your own terms. You can also connect with me at my website KarenBanes.com or follow me on Medium.com.
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