Interest Rates Increased to Fight

Inflation: What it Means For You and

Your Finances

The federal government announced another increase in

interest rates of three-quarters of a percentage point for
the second time in two months in an effort to fight
inflation. The recent interest rate hikes, the most
aggressive since the 1980s economic crisis, aim to slow
spending that has been a factor in rising inflation.

You may be wondering “How will the increase in interest

rates impact my finances?” and “What can I do to protect
my finances?”

There are a few ways the Federal reserve hike can impact
your finances.

• It may cost more to borrow. While raising interest

rates slows inflation, loans like mortgages, credit
cards, and auto loans tied to prime rates may get
more expensive.
• Student loans may be more expensive. Private
student loans are tied to Federal rates so your interest
rates and payments could rise.

Although you may see increases in the amounts you have

to pay on your loans there are some moves you can make
now to protect your finances.
• Pay down debt. If you have debt tied to the prime
rate like credit card debt, pay off your debt as soon as
possible if you can. Especially since interest rates
may increase again this year. To help you tackle your
debt you can try the debt snowball method and start
paying your lowest balance debt first and work your
way up, applying the payment you were making to the
next outstanding balance.
• Refinance for lower interest rates. With the
possibility of interest rates increasing again you may
want to consider refinancing any high-variable interest
rate loans on your home loan or student loans to a
fixed rate loan. At tax-time, you will still be able to
deduct your home mortgage interest and you may be
able to deduct your student loan interest up to
$2,500. If you refinance your home loan, you also
may be able to deduct the points you pay on the
refinance of your home.
• Consolidate Debt. If you have outstanding credit
card balances, consider transferring them to a low
interest and in some cases zero interest balance
transfer credit cards. Many credit card companies
have low introductory rate credit cards that allow you
to pay low or zero interest on balances for a certain
period of time before rates change. The key is to take
full advantage of the low interest rates and pay your
balances off within the introductory period.
• Boost Your Credit Score. By boosting your credit
score you will be able to take advantage of lower
interest rates whether seeking a home loan or lower
 interest credit card. To increase your score, make
your debt payment on time and pay down debt
keeping your credit utilization ratio low.
• Save for a Rainy Day. In times of rising interest
rates you want to have an emergency fund so that
you don’t have to rely on high interest rate credit
cards when you have an emergency.