5 money moves to make before the Fed starts raising interest rates to fight inflation
President Jerome Powell (pictured) and other Federal Reserve policymakers have just reiterated after their recent December meeting that they will keep a key interest rate close to zero.
But only for now.
Officials also said they plan to raise interest rates thrice in 2022. Central bankers worry about inflation: Prices in November rose 6.8% from the previous year, which is the fastest rate of inflation in 39 years.
For consumers, the impending rate hikes may mean now is the time to splurge – or take out a loan for something practical, like a new car to replace an old pile of garbage that won’t start anymore. Here are five money moves you should make before rates go up.
1. Refinance your home loan
Mortgage rates fell to all-time highs during the pandemic, but more recently they have seen their ups and downs.
While 30-year mortgage rates are still at historically low levels, averaging around 3%, the Mortgage Bankers Association predicts that rates will rise to 4% next year, which means it’s time stop procrastinating if you’re thinking about refinancing.
Chances are, you still need a refi. More than three-quarters of homeowners never refinanced at the low rates available in the first year of the pandemic, according to a Zillow survey.
The same study found that nearly half of those who took out new, cheaper loans are now saving $ 300 or more each month.
2. Work on your credit score
While today’s low interest rates make it easier to get loans, it will cost you more to borrow once rates rise.
Today, it’s easy to take a free peek at your credit score and see if it needs some work.
You may need to pay off existing debt and take other steps to boost your score, to improve your chances of borrowing at favorable rates once the Fed begins to tighten credit.
Raising your credit score by a few hundred points will make you a more attractive borrower to all types of lenders, from credit card issuers to those offering mortgages.
3. Refinance your student loans
Federal student loan payments and interest are now on hold until May 1, and some prominent Democratic lawmakers, including Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer, are still pushing President Joe Biden to grant more up to $ 50,000 in student debt relief and cancellation per borrower.
Meanwhile, Americans in debt with private student loans remained subject to their minimum monthly payments.
If you are in this group, refinancing at a lower rate or for a shorter term could save you thousands of dollars in interest charges and reduce your debt for several years. Student loan refinancing rates have been at or near their lowest in recent weeks.
To maximize your savings, compare loan offers from multiple lenders, then set the lowest refinance rate you qualify for.
4. Consolidate your debt
The pandemic has made it difficult for Americans to travel, eat out, or shop at retail, and many have used the money they did not spend on these activities to increase their savings and pay off debts.
The number of consumers who paid off their credit card balances in full each month reached an all-time high of 35.1% at the end of 2020, according to a report by the American Bankers Association.
Yet many households continue to struggle. If you rely on your credit cards to make ends meet, high interest accumulates quickly.
You might want to consider consolidating your balances into a lower cost debt consolidation loan, which could help you save a substantial amount of interest and even get out of debt sooner.
5. Surf the hot stock market
Interest rates are so low that rates on savings accounts will remain low, even if 2022 brings a trio of Fed rate hikes.
If you feel like taking a little more risk, consider putting some of your savings into investments. Wall Street is going through the year with new historic highs.
If you don’t have a lot of cash to play, you can download a popular app that helps you invest your “spare currency” from your daily purchases and grow your pennies in a diverse wallet.
Or, if you’re still worried about the stock market, you might consider investing in fine art, which is a real physical asset with little connection to the stock market. Contemporary art has outperformed the S&P 500 by 174% over the past 25 years, according to the Citi Global Art Market chart.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.