There is fear that the Fed will increase interest rates soon, with rumors as soon as this week, as that should scare anyone with a credit card or plans to have a new mortgage, whether that is a refinance or purchase. I guess we have been lucky that rates have been at record lows starting since the recession and increases ever since is a sign of an improving economy, but the Federal Reserve raising interest rates a few times in the last year and a half as a way to control inflation may be enough for frighten the American population. Plans of action may be in order to avoid any burden that any rate hikes will have on you if you are currently carrying a credit card balance or are in need of a mortgage soon. You can expect to pay more in interest rate, which equals more dollars coming out of your wallet.
Get Rid of Credit Card Balance
Not only is it important for your financial future to not carry a credit card balance and pay interest each month that goes out of your pocket and in the hands of the credit card company, but with the pending interest rate increase, you will now be paying even more each month. The first step to prepare is to pay off your credit card balance. Not an advocate of draining your savings or emergency account, but if you need to pay off debt in order to not pay interest going forward, it may be worth it to not have any debt. Now would be a good time to generate any extra can that you can. One extreme could be finding a second job, or the other side by selling items that are sitting around your house that you may be able to get a few extra bucks to put towards debt payoff. Whatever you decide to do, if you had been making minimum payments in the past, now is as good of time as any to stop doing that a pay a larger payment each month.
Look for a Balance Transfer Promo
With the amount of junk mail that comes every day, your credit card invite opportunities may have been overlooked (or thrown away) previously, so now might be a good time to take a look and see there are better promotion rates than you currently have that will allow you to transfer a balance over with say 0% interest rate for 18 months, if it means you can pay off by then. At least this way if you have a large balance, you are not shelling out interest payments each month. If you have existing cards open but without a balance, log into your online statement and see if you have any balance transfer options available that you could take advantage of. For any offer, you accept, just take note at how much it costs to transfer a balance, as some with be a flat 3% so that could be a heavy payment if you have a high balance, but some may cap at a dollar amount for the transfer fee.
Take Out a Home Equity Loan
If you need cash to pay of any existing debt there is an option you can take advantage of before these interest rates increase as well, and that would be to use any equity you have built up in your home. Allowing you to get a larger sum of money and the option to pay off in longer terms, as well as a more favorable interest rate than taking out a personal loan, a home equity loan or line of credit could be a great way to help. Yes, you are taking out new debt, but paying off existing debt that you were paying a higher interest rate on with no time table of payoff in sight.
Not only taking out for extra cash, but if you currently have an interest rate that is higher than current market rates, you may want to get on that now before your chance to refinance at a lower rate is out the window and we are over 4% interest for the foreseeable future. If you have equity in your home, you could also use a refinance to pay off existing debt as well and roll into your mortgage at a lower interest rate, and at least the credit cards will be paid off. Even the slightest savings in mortgage interest rate can be significant savings, so if you are able to take advantage of a refinance now, it may be worth it, even factoring in the closing costs.
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