Recent months have brought a number of personal finance changes, including a rise in interest rates that will affect some of the terms for borrowing money and accessing credit.
In December 2017, the US Federal Reserve increased its key interest rate by 25 basis points, marking the fifth increase in the rate since December 2015. More hikes are expected.
One of the best tips for handling rising interest rates is to move away from adjustable-interest-rate debt in the form of credit cards, home equity lines of credit and mortgages.
Most credit cards, for example, have a rate directly tied to the federal funds rate, so the 25-basis-point increase will hurt those with credit-card debt. Those with this type of debt may want to consider transferring balances to a credit card with a low (or 0%) introductory rate, and work toward paying down the balance permanently.
You also may want to consider refinancing if you have an adjustable rate mortgage. Adjustable mortgage rates may not rise as quickly as credit card rates, but fixed mortgage rates are still relatively low around 4% so it may make sense to switch.
Home equity lines of credit with adjustable rates often reset quickly to a higher rate, but they generally can be converted into a home equity loan with a fixed rate.
Situations differ, so discuss your personal financial circumstances and goals with your advisor before making these changes. He or she can offer you options for making the most of interest rate hikes.
Note: This material has been prepared for informational purposes only, and is not intended to provide financial advice for your particular situation.
Yann Kostic, MBA and Tom Zachystal, CFP, are Presidents of their respective Assets Management firms, both US-Registered Investment Advisors (RIA). Tom is the San Francisco Financial Planners’ Association President. Tom and Yann cater to US expats in Mexico and worldwide. Comments, questions or to request his newsletter, “News you can use” contact him at email@example.com, in the US at (321) 574-1 529 or in Mexico, (376) 106-1613.