Just as the price of food, gasoline, cars, rent, heat and everything else has risen sharply, interest rates on loans and credit cards are expected to go up a quarter percent as many as seven times this year.
How will rising interest rates affect you?
If you’re not in the market for big ticket items like houses or cars, you may think you’ve escaped rising interest rates, another post-pandemic financial blow. But, not so fast. If you keep credit card debt, you’ll be shelling out more interest on everything you charge . . . unless you pay off all balances by due dates.
The central banking system of the United States, known as the Federal Reserve, already announced the first of a steady pace of rate hikes for 2022. That national board monitors risks to the financial system and takes steps to help ensure a healthy economy for U.S. households and businesses. At a 40-year high, inflation is expected to move the board to make more than a half dozen interest increases in 2022.
Recently, the board announced it will quicken the pace of pulling back support for the economy as inflation surges. How COVID plays out over the next year is a factor, along with the Russian invasion of Ukraine, but the biggest concern is combatting inflation that doesn’t seem to be diminishing as hoped.
How can anyone avoid the cost of higher interest rates? When interest rates are on the climb, most families put off big purchases like cars or homes unless they can get really good deals that lessen the effects of inflation. However, folks can feel as much or more financial pain . . . dollar for dollar . . . by running up credit card debt when interest rates are rising. The best way to avoid being hit with interest rate hikes is by paying for everything with cash, not credit.
Depending on your credit score, your rate of interest on cards varies from about 9 percent to as high as 25 percent or more. If you’re at the high end of the scale, you could be paying an extra quarter for every dollar you put on a credit card. Try taking these steps instead:
- Put all credit cards away until better economic times are back.
- Equip yourself with a sensible shopping list before buying anything.
- List all items you wish to purchase in two columns: “Needs” / “Wants.”
- Search online and in stores for the best, possible prices on every, single necessity.
- Place what you don’t need in your “Want” column for later, or for special occasions only.
- Pay more than your “minimum credit card payment.” Pay down as much as you possibly can.
Be smart. Control your own cost of living with wise decisions. Eliminate any extra interest you don’t have to pay.
Manage Your Money . . . financial tips from: AAM Fee-Only Financial Planning & Investment Advisory LLC
Follow our blog: aamllc.com
Ronald Van Surksum, CFP
4555 Wilson Ave SW – Suite 2 Grandville, MI 49418
Phone: (616) 531-5220 Cell: (616) 450-8439
For permission to reprint: firstname.lastname@example.org 04-01-22