3 Personal Finance Tips To Weather Rising Interest Rates
The possibility of an impending recession has been a growing concern among experts. Even before two bank failures this month, and the Federal Reserve’s recent interest rate hike, Alan Gin, an associate professor of economics at the University of San Diego’s Knauss School of Business, stated that there is still a 60% chance of a recession happening this year. Hence, it is important for individuals to take a closer look at their financial situation.
Higher interest rates mean that it will be more challenging and more expensive to borrow money. Lines of credit will tighten up, mortgage rates will go up, car loan rates will go up, and credit card rates will go up. Adjustable mortgages or loan monthly payments will also increase, along with a credit card’s minimum monthly payment.
According to the Census Bureau, nearly 40% of Americans use credit cards to pay for necessities, and the average credit card interest rate is over 24.10%.
California Coast Credit Union’s CFO, Matt Ficco, confirmed this observation and stated that consumers are using the funds they had saved up for daily expenses and are tapping into their credit card balances, which puts them in a dangerous position when credit is tightening and rates are going up.
Ficco recommends three things that individuals can do to be in a better position if a recession does hit. Firstly, people should discuss finances and be honest about debt.
They can make a list of all their monthly expenses and classify them as necessary or discretionary, and cut the expenses that they don’t need. Secondly, people should make a plan to pay off their debts and save.
They should focus on doubling up payments on credit card bills, paying down their home equity line of credit, and continuing to save for that rainy day fund. Finally, individuals can get financial counseling, whether they need it or not. Banks and credit unions often offer this service for free, and it is never too early or late to get help from an expert.
Ficco cautions against pulling money out of retirement accounts since there will be a fee, and it might not be worth it. He also advises not to stop paying into the account and recommends keeping this habit.
Though it may hurt in the short term, being debt-free and having a savings cushion can alleviate stress and prevent financial catastrophe.
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