With interest rates rising, now is the time to refine credit and spending habits
With interest rates rising, now is the time to refine credit and spending habits

If you’ve been paying attention to financial news lately, topics like inflation, rising interest rates and the housing market have been the predominant headlines.

While much of the attention on rising interest rates has focused on how potential buyers are affected and why they should act now to avoid paying more for the same home later, consumers should also take a close look at any current debt and spending habits.

The reality is that many factors contribute to our current economic environment that we cannot control. But there are ways to take control of our own finances to lessen the impact on our wallets.

Here’s what you need to know and do now.

Understand how rates affect you

If you’re a credit card user and pay down your balance every month, rising interest rates probably won’t affect you that much. However, if you have a balance (or multiple balances) on credit cards, which usually have variable interest rates, those balances could cost you dearly in the short and long term.

When the Federal Reserve increases the prime rate, credit card interest rates or the annual percentage rate (APR) also increase.

If you have a credit card balance, a higher APR will mean higher minimum monthly payments and longer periods to pay off what you owe. Credit card issuers are now required to show on your monthly statements how long it would take you to pay off your current balance if you only paid the minimum each month. Consider these numbers carefully as the first step in developing a payment plan.

Consider consolidating

If you have multiple credit card balances, consolidation can be a great option. Rather than trying to pay off multiple cards at once, consolidating would consolidate them under one monthly payment, allowing you to pay more toward one balance instead of trying to gradually pay more than the minimum spread over multiple balances.

Here are some options to consider:

• Transfer balances to another credit card: Look for a credit card that has a 0% interest grace period on balance transfers, transfer balances, and pay as much as you can within the grace period. Even if you only have one credit card with a balance, transferring can still benefit you because with zero interest, every penny goes towards your balance. Be sure to watch the balance transfer fee so you’re not surprised when your new balance initially increases by 3% or more.

• Tap into the equity in your home: If you’re a homeowner, chances are the booming real estate market has increased the value of your property, thereby increasing your net worth. A home equity installment loan would give you a lump sum to spend on your project and then predictable, fixed payments and terms over an agreed period to pay it off.

Another option is a home equity line of credit (HELOC) using your principal for a revolving line of credit, like a credit card, that you can tap now to pay off debt or when needed over a longer period. .

• Consider a personal loan or line of credit: Another way to lessen the impact of rising rates on any outstanding revolving debt is to take out a personal loan or line of credit. These can be useful if you don’t have collateral to borrow against your home equity to pay off other loans.

Recalibrate your budget

Even if you don’t have a credit card or other loan balances, now is a good time to take a hard look at your monthly budget to avoid getting into debt. With inflation continuing to drive up the prices of everyday necessities like groceries, gas, and more, it’s a good idea to adjust your budget to account for increased spending on these items.

Taking a measured approach to inflation and rising interest rates can help you keep pace with paying down your debts and can even help you find gradual ways to start or increase saving for your long term needs.

Candice Caruso is Senior Vice President, Head of Retail Lending at WSFS Bank. She brings over 20 years of experience in the financial services industry, including 12 years as a corporate finance expert, and has been featured on Bloomberg Radio, CNBC’s Closing Bell, The Wall Street Journal and Franchising World. .

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