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The Fed will raise interest rates again soon. Make that money now

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Chairman of the Federal Reserve Jerome Powell.

Xinhua News Agency | Xinhua News Agency | Getty Images

For the first time in recent years, Americans are facing a period of rapid growth in interest rates.

Federal Reserve on Wednesday published the minutes of its last meetingthat shows that the central bank plans to raise rates by more than 50 basis points this year, probably at every other meeting on the calendar. In an effort to curb inflation, the Fed may raise interest rates more than the market expects.

Minutes of a meeting of the central bank in early May, at which he raised his questions approximate rate of pay.

As rates rise, financial experts are advising consumers to take some key monetary steps to put themselves in a better financial position. These generally include paying off debts and strengthening personal budgets to be able to withstand any sudden economic turmoil.

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“If your New Year’s resolution was to create a family budget, it may need to be updated and reconsidered,” said Katie Schaefer, certified financial planner, vice president and family consultant manager at Baker Boyer in Walla Walla, Washington. Now there is “an opportunity to really look at your personal budget and identify some ways to repay debt more aggressively as rate increases are expected to continue”.

Pay off the debt

Some borrowers should be especially careful now.

This includes those who want to buy a home buying a car or has credit card debt, according to CFP Lauren Anastasio, director of financial advice at Stash.

“If you’re shopping for a home, you can ask your lender if you can fix your bid now,” she said. “Sometimes a fixed-fee lender allows you to fix today’s rate, even if you’re not going to close for a few more months.”

Some borrowers considering adjustable rate mortgageswhich offer lower starting rates but end up return to market conditions. People who have had ARM and are nearing the end of this period may want to consider flat-rate refinancing.

Car buyers may want to stick to new models and avoid the used car market where prices have jumped the most. It is also in your best interest to find time to shop for the best deal.

“There’s still great value there,” said Jackie Cairns, chief financial and strategy director of the Federal Affinity Credit Union in New Jersey, adding that although rates are rising, they still remain low.

It’s a very subtle dance led by the Fed.

Lauren Anastasia

director of financial advice at Stash

People who have credit card debt may also want to contact their creditors to find out if they can make a deal.

“I always encourage people to call their creditors and see if they can lower the interest rate,” Anastasio said.

It may also make sense to consolidate credit card debt into something with a fixed rate, as this type of debt is most sensitive to rising rates and often causes the highest interest rate. Currently, the average interest rate on a new credit card is almost 20%, according to LendingTree.

It is also a good idea, if possible, to repay the debt completely. Kearns recommends tackling those cards that have a relatively low balance.

“If you have $ 200 or $ 300 [debt] there, just pay, ”she said.

Prepare for the future

Peter Desley Photo CD | Getty Images

Debt repayment is just one way to adjust to financial success in the future, which is especially important because people weigh the risk of recession.

“It’s a very subtle dance led by the Fed,” Anastasio said, adding that while the central bank will do its best to curb inflation without stopping the economy too much, there are many factors that are spiraling out of control. for example, the uncertainty that follows from war in Ukraine.

Financial experts recommend now taking the time to reconsider your expenses and savings to achieve a solid balance sheet.

“Be smart in spending the money you have,” Cairns said. This could mean cutting electoral purchases or increasing the budget for items that have risen in price. Americans also need to make sure they have robust emergency savings to counter rising prices.

If people are planning future expenses, such as future vacations, they may also want to make up more than usual, Anastasio said.

“The reality is that we can see a reduction in rapid cost growth, but that doesn’t necessarily mean that when I go to the grocery store to buy baby formula, the manufacturer will suddenly go back to what it charged two years ago,” she said. .

Seek help

Of course, rising interest rates have some benefits. Over time, depositors may begin to see better rates on savings accounts, Schaefer said. Investors also have the opportunity to benefit from market volatility, Cairns said.

“It’s a great time to invest if you have an appetite,” Cairns said. “Literally just a few dollars a day because of the volatility we see can gain great value if you stay in the long run.”

Those who are struggling with their money or experiencing stress because of the current environment may want to seek professional help for better budgeting or planning for the future.

“It’s the right time to take a really close look at your goals, risk tolerance and financial plan,” Schaefer said, adding that this is especially important for those in transition, such as retiring or preparing to send a child to college .

“Have a plan and work with someone to create that plan,” Cairns said, adding that there are a variety of resources that cover prices from digital tools, platforms to personal consultants.

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