The Federal Reserve announced an interest rate increase on March 16, 2022 – the first since 2018. But what does that mean for the general public? And what, if anything, do you you need to do now?
If you have loans or credit cards, the interest rate determines how much you will ultimately pay the lender. According to our partners at iGrad, “In exchange for allowing you to pay for a large purchase over time, retailers, lenders, and credit card companies charge interest.” You’ll pay a percentage of your purchase or loan amount in the form of interest over the life of your loan. So unless you have a fixed rate that doesn’t fluctuate, increasing interest rates mean you’ll be paying more in the long run. Here are a few items to examine before interest rates climb again:
Consider Refinance Opportunities
Student loans, auto loans, and mortgages are long-term financial commitments; the longer the repayment term of your loan, the more you will generally pay in interest over the years. If your current loan has a variable rate that goes up and down, this may be a good time to examine your options for refinancing. Even with the recent increase, interest rates are still fairly low. You could move to a fixed rate to lock in current low rates, or refinance at a lower rate than your current one.
Take the Plunge on Big Ticket Items
If you’re in the market for a new home or vehicle, you could save considerable money over the life of your loan if you purchase and finance those items now before interest rates increase again. Of course, only dive in if you’re financially prepared to make the payments. Even the lowest interest rates can’t offset a payment you can’t afford!
Consolidate Credit Card Debt
If you have credit card debt you are actively paying down, look into consolidating it at a lower interest rate, or utilize a zero percent balance transfer promotion. Just be sure to carefully review the terms to ensure your rate won’t skyrocket after a few months, and continue making more than your minimum monthly payment to take full advantage of the savings.
Overall, be sure to pay attention to current interest rates and trends. Those little interest rate numbers can make a big difference over time!
*By refinancing federal student loans, you may lose certain borrower benefits from your original loans. These may include interest rate discounts, principal rebates, or some cancellation benefits that can significantly reduce the cost of repaying your loans. In addition, measures related to the Coronavirus pandemic have paused payments and interest for federal student loan borrowers. If you are considering refinancing your federal student loans, please make sure to review these measures at www.studentaid.gov/coronavirus to understand your options.