Fed interest rate hike affects everybody; we all complain about it. Because due to the rate hike we have no choice but to pay more.
Here are many other ways the interest rate hike can affect you:
1 You will find inflated price everywhere
Interest rate hike is closely linked to price rate, which affects borrowers directly. Once the Fed hikes the rate, all major banks raise their base rates to a certain percentage. Thus, borrowers get inflated rate on variable-rate loans, including most credit cards.
It affects the mortgages as well. Borrowers need to refinance to lock in low rates.
2 It affects your savings
You may get benefit from your savings account. You can earn more interest.
Thus, interest rate hike is a good news for people who have no debts and have multiple savings account.
However, if the savings interest rates stand at the bottom level, then you don't expect it to rise.
3 You may need to pay more on consumer debt
The rate hike impacts consumer debt as well. The rate hike's impact may be greater than consumers’ expectation.
We all know that credit cards are all about adjustable rates that vary on the market’s ups and downs.
Initially, you will not feel bad to pay an extra $5 a year on every $100 you carry in credit card debt. But, who owes $10,000, needs to pay about $500 in a year, which is not a joke.
4 It affects the education cost
The rate hike usually influences education cost, too. The Department of Education might announce the new rate in the coming days.
So, the undergraduate loans, direct unsubsidized loan, Direct PLUS loans, can increase to a certain percentage due to the Fed rate hike.
A good part of the rate hike is that it won’t impact most students who are in student loan debt currently.
Because student loans are fixed-rate and federally backed. If you carry adjustable-rate private student loans, you can refinance to avoid possible multiple rate hikes over the next few years.
5 It affects the auto loan
Auto loans follow the base rate; it doesn't match with the Fed's rate. However, the Fed's rate hike influences it.
Higher rates can motivate you to buy a less expensive car.
Moreover, the automakers will try to hold onto sales by subsidizing the cost of borrowing or offering other financial incentives.
How does the Fed rate hike affect personal loans?
Like mortgages, personal loans and business loans has also increased in response to the Fed’s increases.
As I have mentioned earlier, variable loans like credit cards and home equity lines also rise within one to three months after the rate hike. Thus, you have to ask your credit card companies whether or not they have increases the base rate and charging higher for credit card balances.
However, you can avoid the higher charges by paying off the credit card debts as early as possible. You can also transfer the outstanding balance to an interest-free balance transfer credit card. Because the zero percent introductory offers is not yet affected by the Fed’s rate hike.
Steps to follow to protect yourself from the rising interest rates
The Federal Reserve has increased the interest rate in many sectors. Thus, it is important to follow some suggestions to avoid financial loss.
1. If you are carrying credit cards debts, then pay them off as soon as possible, because the credit card debt interest rate has increased.
2. Don't delay in buying a car, furniture, or appliances, because the interest rates on the car loan or personal loan has increased from the first quarter of this year.
3. Give importance to the long-term savings.
Lastly, pay attention to the update from the Federal Open Market Committee.