Money moves to prepare for higher interest rates
Rising interest rates mean consumers will have to rethink how they use their money.
SAN ANTONIO — Higher interest rates make borrowing more expensive. It would be great if we could all get out of debt, but until you can, here are four actions to take now:
The first place you’re likely to see interest spike is your credit card.
#1: Call now and ask for a lower interest rate.
“The credit card company is not going to call you and offer you a lower rate,” said Karl Eggerss, financial adviser at Captrust in Boerne.
“About three-quarters of the time, if you ask for a break, you can get it from your credit card company,” said Ted Rossman, senior credit industry analyst for Bankrate.com. “You’re probably not going to go from the average (credit card interest rate), which is around 16.5%, to 0%.”
Still, lowering your credit card interest rate by a few percentage points will save you money when you pay off the balance.
#2: Consider transferring your balance to a credit card with an introductory interest rate of 0%, but pay off the balance before the special rate ends.
“Be careful with some of the introductory rates because as they go down you can actually, if you can’t pay off that balance, you can be hit with that higher interest rate,” Eggerss said. .
Rossman said to make more than the minimum payments if you transfer a balance to a 0% introductory interest rate card or are willing to pay a much higher interest rate when the special rate ends.
“It could easily be 15% or 20%, sometimes even more,” he said. “You don’t want to just kick the box on the road.”
Also be aware that there may be an upfront fee to transfer a balance to a new card.
#3: Improve your credit score.
The higher your credit score, the more you will qualify for a lower interest rate on loans. Credit scores can take time to improve, so start now.
An easy way to increase your score is to fix errors on your credit report. Go to annualcreditreport.com to get a free copy of your report.
“People make mistakes,” Eggerss said. “Companies make mistakes, so you can see something that’s not your fault and you can challenge it.”
Rossman also suggested using Experian Boost for free to boost your credit score.
“It can give you credit for things that didn’t count before like (payments to) streaming services, cell phone plans, utilities,” he said. “It can help improve your credit score.”
Reducing the amount of debt you have will also increase your credit score because it will lower your credit utilization rate, which is the amount you owe relative to your credit limit. Pay off as much debt as possible to improve your credit utilization rate. Or ask your credit card for a higher limit, but don’t put more purchases on the card.
Then make payments on time every time.
Higher interest rates can also be an advantage. The money saved will earn more money without you doing any extra work.
#4: Look for a savings account with a high interest rate. Search online for the best rates.
“As long as they’re FDIC insured,” Eggerss said. “The idea is that most of these businesses avoid brick and mortar businesses so that they don’t have a lot of expenses that a lot of banks have in having a lot of staff, having physical locations and so they go sometimes offer more competitive rates.
“Right now, we’re seeing the best rates on fully liquid, fully federally insured online savings at around 1%,” Rossman said. “It will go higher. This could easily be 2.5% or even 3% by the end of the year at the high end. So shop around.
It is possible that the Federal Reserve will continue to raise interest rates over the course of the year, so it is important to make these money moves now.
“The fed funds rate could very well be around 3% by year end and it started the year at 0%,” Rossman said. “You’re definitely going to notice it on things like credit cards.”
Higher interest rates don’t have to put you in more debt if you prepare for it now.