15 June 2022
Raleigh, N.C. — The Federal Reserve announced on Wednesday its third interest rate hike intended to curb inflation. But before prices start to fall, consumers are likely to feel the pain of higher rates on borrowing.
Credit card debt, home and car loans and even your savings account are all being impacted..
“We at the Fed understand the hardship that high inflation is causing,” said Jerome Powell, chairman of the Federal Reserve of the United States. “We’re strongly committed to bringing inflation back down, and we’re moving expeditiously to do so.”
The interest rate hike means anything you have currently with a variable interest rate will increase and new loans, including mortgages, will have higher starting rates.
“It may not look like a big percentage, because it’s isolated, but if you have revolving or variable debt, that could have a huge impact on your financial situation,” said LaTonya Parsons, a financial planner with Wake Technical Community College.
While that is out of your control, you have more power than you may think. Parsons recommends to sit down and get organized and spend time looking over your finances, if you don’t already.
Advice for those with credit card debt
“Now is the time to trim the fat,” Parsons said. “Figure out where you can cut, think subscription services, and frequently takeout. Looking at what those needs and wants are is going to be really important.”
The average North Carolinian has more than $6,000 in credit card debt, according to data on Lending Tree.
Use any money you can spare right now to pay down credit card debt. For example, if you have $5,500 in credit card debt, at a 17% rate right now, it would take you 23 months to pay it off if you paid off $100 a month. With the .75% federal reserve interest rate hike, that debt would take you a whole extra month to pay it off.
Advice for homeowners
If you own a home and have a fixed interest rate, the latest hike won’t affect you. But, if you own a home and have an adjustable rate, now’s the time to talk to your lender and get the lowest refinance possible.
Remember, interest rates will impact your monthly payment: if you bought a $450,000 home with a 20% down payment at a 3% interest rate earlier this year, your monthly bill before taxes and insurance for a 30-year mortgage would be $1,500.
If that interest rate goes to 5%, the same priced home with a 30-year mortgage would cost you $1,900 month.
Advice for those with student loans
If you have a government-issued loan, the amount of interest you are paying on your loan won’t change.
However, if you have a private loan, your interest rate will go up. Work on paying off your private student loans as soon as possible, and talk to your lender about securing a lower interest rate.