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Money moves to prepare for higher interest rates

Rising interest rates mean consumers will need to rethink how they use their money.

SAN ANTONIO — Higher interest rates make borrowing more expensive. It would be great if we could all ditch the debt, but until you can here are four actions to take now:

The first place you are likely to see interest rise is your credit card.  

#1:  Call now and ask for a lower interest rate.

“The credit card company is not going to call you and offer you a lower rate,” said Karl Eggerss, a financial advisor with Captrust in Boerne.

“About three quarters of the time, if you ask for a break, you can get it from your credit card company,” said Ted Rossman, a senior credit industry analyst for Bankrate.com. “You are probably not going to go from the average (interest rate on credit cards), which is about 16.5% all the way down to 0%.”

Yet, shaving a few percent points off your credit card interest rate will save you money as you pay off the balance.

#2:  Consider transferring your balance to a credit card with a 0% introductory interest rate, but pay off the balance by the time the special rate ends.

“Be careful of some of the introductory rates because as those go away, you can actually, if you can’t pay off that balance, you may get hit with that higher interest rate,” Eggerss said.

Rossman said to make more than the minimum payments if you transfer a balance to a 0% introductory interest rate card or be ready to pay a much higher interest rate when the special rate ends.

“It could easily be 15% or 20%, sometimes even more,” he said. “You don’t want to just kick the can down the road.”

Also, be aware that there may be an upfront fee to transfer a balance to a new card.

#3:  Improve your credit score.

The higher your credit score, the more likely you will qualify for a lower interest rate on loans. Credit scores can take time to improve, so start now.

An easy way to boost your score is to correct any errors on your credit report. Go to annualcreditreport.com to get a free copy of your report.

“People do make mistakes,” Eggerss said. “Companies make mistakes so you may see something on there that wasn’t your fault and you can dispute that.”

Rossman also suggested using Experian Boost for free to raise your credit score.

“It can give you credit for things that didn’t use to count like (payments to) streaming services, cell phone plans, utilities," he said. "That can help improve your credit score.”

Reducing the amount of debt you have will also increase your credit score because it will lower your credit utilization rate, which is how much you owe in relation to your credit limit. Pay down as much debt as you can to improve your credit utilization rate. Or ask your credit card for a higher limit, but do not put more purchases on the card. 

Next, make on-time payments every time.

Higher interest rates can also be a benefit. Saved money will earn more money without you doing any extra work.

#4:  Shop around for a savings account with a high interest rate. Look online for the best rates.

“As long as they are FDIC insured,” said Eggerss. “The idea is that most of those companies are avoiding the brick and mortar businesses so they don’t have a lot of the expenses that a lot of the banks have by having a lot of staff, by having physical locations and so they sometimes will offer more competitive rates.”

“Right now, we see the best rates on totally liquid, totally federally insured online savings at about 1%,” Rossman said. “That is going to go higher. That could easily be 2.5%, maybe even 3% by the end of the year at the high end. So shop around.”

It is possible the Federal Reserve will continue to raise interest rates during the year, so it is important to make these money moves now.

“The federal funds rate could very well be around 3% by the end of the year and it started the year at 0%,” Rossman said. “You’re definitely going to notice that on things like credit cards.”

Higher interest rates do not have to drag you deeper into debt if you prepare for them now.

   

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