5 Steps to Resist Rising Interest Rates

Rising Interest

Everything is on the rise. Inflation is at a 40-year high. Consumer prices are up more than 8% over June 2021. And while the heated housing market appears to be slowing down just a little, it’s unlikely that home prices will be dropping any time soon.

To help cool inflation and the housing market, the Federal Reserve is increasing interest rates, which is expected to continue at least through the end of 2022. These changes drive higher rates on consumer financing and payment plans, such as mortgages, car loans, and credit cards.

Fortunately, these rising rates take some time to work through the economy and shouldn’t impact consumers overnight. You do have some time to prepare for what comes next, which will include higher borrowing costs. Here are five steps you can take to help ease the pinch.

1. Get a Snapshot of Your Personal Finances

Before you form a financial action plan, you need an accurate picture of your personal finances, including how much you have in both savings and debt. Be sure to include everything: loans (mortgage, personal, auto, or student), credit cards balances, savings and checking accounts, stocks, bonds, IRAs and 401(k)s. It is important to understand exactly where you are financially so you can create the best strategy to resist rising interest rates.

2. Review Your Budget

Budgets are a crucial part of managing your finances, and a realistic budget is more important now than ever. Living outside your means and borrowing to fund expenses means you will feel the squeeze as rates rise and borrowing becomes more expensive. Creating and sticking to a budget can make a real difference in how well you manage in an uncertain economy. If you don’t have a budget, it’s definitely time to create one.

If you already have a budget, take another look at it. Make sure you’re accounting for higher prices on things like groceries and gas. Think about ways you can be more intentional about your spending and reduce or eliminate unnecessary expenses.

We know that this can be a lot of information to wade through, and some of it can be confusing and complex. If you need help, we have specialists here to share their knowledge and expertise. They can help you create a detailed plan based on your personal financial picture.

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3. Lock In Low Rates and Pay Off Debt

There’s good debt and bad debt and knowing the difference matters. If you’re a homeowner with a fixed-rate mortgage, you’ll be safe when the Fed raises rates. But carrying a mortgage with a variable-rate or other high-interest debt means you’ll want to act fast as rates climb.

If you’ve accumulated credit card debt, take a close look at the interest rates, and aim to pay off those with the highest rates first. This is where a budget review comes in handy, as the money saved by eliminating unnecessary expenses can be used to pare down debt.

You may also consider consolidating your outstanding balances on either a lower interest rate credit card or with a personal loan. Citadel offers several options for debit consolidation:

  • Balance-transfer cards. Citadel’s Rewards Mastercard has a low fixed rate and no annual or balance transfer fees, plus the accumulating rewards can help offset increased costs elsewhere.
  • Personal loans. Borrow up to $20,000 for your personal financial needs, including debt consolidation. Take advantage of our low, fixed rates and flexible terms.
  • Homeowners who have equity in their homes can also consider a home equity loan to consolidate debt.

Learn more about consolidating debt.

4. Bulk Up Emergency Savings

An important part of any financial plan is having cash for emergencies. Experts typically recommend storing between six to nine months’ worth of expenses in an easily accessible account. Once again, if you already have an emergency account, make sure you’ve added to it to keep up with rising costs. And if you don’t have an account, look for room in your budget to contribute to one over time. Every little amount helps.

Remember, this isn’t an investment where you should be concerned about high return rates, but rather quick access to cash when you need it most. After all, your emergency fund could mean not having to put unexpected expenses on a high interest rate credit card.

5. Benefit by Being a Saver

Finally, if you’ve gone through all the other steps: created a budget, paid down debt, locked in low interest rates, and built up an emergency fund, you might find yourself with some extra money. The one good thing for consumers about rising interest rates is that savings accounts will begin seeing more of a return. Instead of spending the money you budgeted for paying off debt, funnel those payments right into a savings account to take advantage of these rising rates. Don’t expect to be flooded with cash, but accounts that were previously at lower interest rates will begin to see a rate increase.

Because Citadel is a not-for-profit credit union owned by our members, we’re able to offer competitive pricing and rates that benefit our members.

  • Our Star Savings account requires a $5 minimum deposit, and the more you save, the higher your interest rate will be.
  • Our High-yield savings account offers an even greater return while still allowing you easy access to your money.
  • With terms as short as three months, Certificates (commonly referred to as CDs or Certificates of Deposit at other financial institutions) are a good option once your emergency account is fully funded.

Here to Help

Budgets. Interest rates. Inflation. Savings. It’s a lot to think about and it can be stressful. That’s why Citadel is here to help. We are committed to our mission of “Building Strength Together” and providing our members with the tools and advice they need to manage in an ever-changing economy. Contact us today and let’s get started!

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