Federal Reserve Chairman Jerome Powell is laser focused on reducing inflation, using the best tool at his disposal – raising interest rates.
And while President Joe Biden is optimistic about August’s inflation numbers, millions of Americans are feeling the pinch due to the combination of high inflation and rising rates.
It gets worse. Consumers shouldn’t expect that pinched feeling to ease anytime soon. In fact, with another rate hike almost certain next week, that feeling could become even more acute.
Here are five money transfers you might want to jump on before rates rise again.
1. Deal with your debt
While the Fed raises rates, lenders follow suit. Some types of fixed rate loans will take a while to go up, but you should expect variable rates such as credit cards or home equity lines of credit (HELOCs)]( https://moneywise.com/mortgages/mortgages/what-is -a-heloc-and-is-it-right-for-you) to be implemented immediately.
That means the interest on your already expensive credit card will go up overnight.
While many households took the time to pay down their balances over the pandemic, outstanding balances are back on the rise. Outstanding credit card balances increased by $570 million between the first and second quarters of this year, according to Federal Reserve data.
If you’ve been relying on your credit cards for cash or overspending recently, the expensive interest will add up quickly, which means paying down your debt should be a priority — or it will cost you even more .
2. Work on your credit score
Improving your credit score is worth it whether you want to get a loan quickly in the next month or two before rates rise or if you need to get a loan later.
Adding a few hundred points to your credit score will make you a more attractive borrower to all types of lenders – from credit card issuers to mortgage lenders.
You may need to take steps to improve your score to ensure you’ll be able to get a loan at favorable rates once the Fed starts tightening credit. Checking for errors is a good place to start.
3. Trim your monthly expenses
With inflation still very high, it is understood that everything costs more these days.
And while raising interest rates is the Fed’s best tool to fight inflation, it means you don’t get a break on anything from your debt to your dinner out.
Both energy, food and fuel are major contributors to the high rate of inflation. As much as possible, cut down on your bills at the gas pump and the grocery store.
Next, go through your budget and see if there’s anything you can cut: cancel streaming subscriptions you’re not using, have date nights at home and call your service providers to see if they can offer you a cheaper rate.
Even better, with insurance for example, if you haven’t looked around your options in the last six months, it might be time to shop around for a better deal – it could be hundreds that you saved during the year.
4. Look for investment opportunities
If you have a little risk appetite, you could put more of your money into investments. While the stock market has fallen sharply from record highs during the pandemic, the recent decline presents a great opportunity for forward-thinking investors.
If you’re not going to retire for a decade or two (or maybe three), then a bear market gives you an opportunity to get an expensive portfolio that would be much smaller.
But if you can’t risk your principal or you’re worried about the stock market’s recent wild swings, read more about alternative investments that haven’t seen the market move.
5. Ask for help if you need it
Managing your money doesn’t have to be complicated, but it can be confusing. And there’s no better time to call for backup than when it feels harder to reach your financial goals on your own.
Working with a financial advisor can help you get your priorities straight and ensure you’re on track for both your long-term and short-term goals.
You also don’t have to commit to a long-term relationship if that doesn’t suit you – for a flat fee, or one fee, consultants can help you develop a plan for a set price and leave you to do just that. A professional wants to point you in the right direction.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.