MEMPHIS, Tenn. (WMC) — The Federal Reserve raised interest rates for the first time in years last week and more increases are expected to occur throughout the year.
Finance experts say it could impact everyone with savings accounts, mortgages, credit cards and more.
Kimberly Palmer, personal finance expert at NerdWallet, said every time the Federal Reserve does, any consumer debt you’re carrying could become more expensive.
“It affects people most often when it comes to credit card debt. Credit cards usually have a variable interest rate, which means the interest rate fluctuates and when rates go up, it gets more expensive,” she said.
This also has an impact on potential owners. Palmer said even a small percentage change means you pay more each month.
For example: If you plan to buy a house, with a 30-year mortgage at a rate of 3.5%, a loan of $200,000 yields a monthly payment of $898. A rate increase of just 1% (4.5%) takes it to $1,013 per month, which adds about $40,000 in interest over the life of the loan.
Palmer said homebuyers should do some research before committing to a loan rate, and factors such as a strong credit score can help secure lower rates.
“The most important thing is to shop around and not just accept the first deal you see. You want to make sure you’re really shopping around and getting the best deal for you.
If you want to save money, there is a silver lining to higher rates.
“Interest rates or yields on savings accounts are also expected to rise. So your money can earn more because it just stays in your bank account,” Palmer said.
With these impacts in mind, Palmer recommends making a plan to pay off your debt and, if you have fixed-rate debt, locking in those rates.
“Debts like mortgages, auto loans, you want to try and lock in lower rates as soon as possible because we’re now in an environment where not only do we just have a rate hike, but we expect to more are coming throughout the year.”
According to Palmer, consumers can think about paying off their debts in several ways. One of them is to first pay off the debt with the highest interest rate to pay as little interest as possible. She also says other people are motivated by paying off their smallest debt first.
“It can really give people a boost when they start paying off those little debts. Maybe you have a range of credit cards, you want to get rid of the ones with the smallest debt first, unload them and turn your attention to the next one. So it’s pretty much a personal choice on how to pay off the debt, but the most important thing is to really come up with a plan.
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