Rising Interest Rates: How to Protect Your Finances
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Here's your money briefing for Thursday, May 5th. I'm J.R. Whalen for The Wall Street Journal. We've talked before about how rising interest rates can have all sorts of effects on your personal finances. So after the Federal Reserve's half percentage point increase yesterday and more expected to be on the way, what steps can you take to protect your money?
This is especially a good time to pay down debt. We might see credit card APRs increasing. That means that people will see higher interest rates on their debt.
But it's not just credit cards. People with student loans or who are shopping for a car or even those aiming to buy a house will all feel the effects of rising rates. We'll talk with our personal finance reporter, Julia Carpenter, about what you can do about it after the break.
The Federal Reserve raised interest rates by half percentage point yesterday, and additional rate hikes could be on the way before the end of the year. The decision wasn't a surprise to Wall Street, but it could catch some consumers off guard if they aren't prepared. So how will higher rates affect your personal finances? And how can you lessen the impact? WSJ personal finance reporter Julia Carpenter joins us with some answers. Hey, Julia, thanks so much for being with us.
Thank you so much for having me.
So, Julia, the Fed raised short-term interest rates yesterday by half a percentage point. Just put that in simple terms for us.
What immediate consumer impacts come from the Fed's half-point rate hike?
What does that mean?
When the Fed raises rates, that means that it's increasing the rate that banks charge each other to borrow money. But we see this in our personal lives, in our household finances, in our individual finances, because it affects all other kinds of rates that touch us in so many different financial products, things like mortgages, credit cards, and more.
All right. So not only has the base cost of products gone up, we've seen that in the rate of inflation, but the cost of financing purchases is also on the rise. So let's talk about how people can lessen the impact of higher interest rates on their finances. For people carrying credit card debt, what could they do to ease the pressure?
Talking to financial advisors, this is a big one that kept coming up. You know, they said it's always a good time to pay down debt, but this is especially a good time to pay down debt. We might see credit card APRs increasing. That means that people will see higher interest rates on their debt. So prioritizing paying down that now could really benefit people in the future. For people looking to improve their credit score, this is also really important because paying down your credit card debt will improve your credit score, which then improves many different things in your financial life.
Now how about people who are applying for credit cards?
So it's always good when you're applying for credit cards to shop around, to comparison shop, to not just get the card that your friend has or get the card with the flashiest reward program, but instead to really look at that APR. It's also important to keep in mind, maybe you are looking at credit cards and thinking about which one has the best benefit for you, but applying for multiple credit cards or having multiple lines of credit open with debt on those cards is bad for your credit score. So just keep that in mind when you're doing that calculation.
Now, I want to focus in on mortgage rates. We started the year with rates well below 4%. They recently ticked up to over 5%, and now the Fed's move could push them even higher.
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