The Federal Reserve raised interest rates by 0.75% this week as politicians act more aggressively to fight inflation, which is at its highest in 40 years and is hitting American consumers.
But experts say the rise in interest rates, the largest since 1994, could also affect personal finances in a number of ways.
Here are some smart money moves you can make now that can put you in a better position when prices rise:
Lock in the mortgage rate
Whether you are preparing to buy a home or already have a mortgage, make sure your interest rate is fixed and not adjustable.
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“It really makes sense to pay attention because it looks like interest rates are going to be higher than we’ve been used to for the last decade or so, or longer,” said Robert Gilliland, CEO and senior wealth advisor at Concenture Wealth Management.
“Interest rates are going to be higher, then [people] must be aware that it may make sense to review refinancing a mortgage, “Gilliland told FOX Business, noting that ARMs can go up” a lot “and that in some cases it may be prudent to refinance an ARM even if fixed rates are higher than what a person pays now.
“Manage your payments, it may make sense to lock in rates,” he says. “The same will be true of home equity lines of credit.”
Pay down credit card debt and take action to reduce interest paid on balances
If you have credit card debt, which is currently rising in the midst of soaring inflation, be sure to make a plan to pay it down because interest rates will continue to rise.
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“With a credit card that has a balance, you will be really, really serious about getting them paid down because those interest rates are going to keep going up,” Gilliland says.
In the meantime, you can try to either renegotiate the annual percentage charged to your balances, or move that debt to a card with a lower or zero interest rate. He suggests checking out a site like NerdWallet to find the best deals offered for transferred balances.
Shop for savings accounts with higher returns
Gilliland says that one positive thing about rising interest rates is that “Americans now have a lot of money in cash,” and “their free cash is going to start earning a little more than it has been.”
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Bankrate financial analyst Greg McBride agrees, telling FOX Business’s “Cavuto: Coast to Coast” that the benefit of higher interest rates is that savers will benefit from it, and advises people to shop around to find the best interest rates.
“The return has been so low for so long,” McBride told host Neil Cavuto. “Things have turned around in the sense that for much of the last three years there was a situation where the return on savings fell and then inflation took off. Now we are in a situation where over the next few years or two, we expect interest rates to rise and hopefully, eventually, inflation will fall. ”
Reassess investment appropriations
Gilliland recommends that people meet with their financial advisor to evaluate investment allocations, and be sure they have taken into account stress tests that plan a higher inflation environment – especially people who plan to retire soon or have retired in the last ten years.
When it comes to the stock market, Gilliland predicts that “we are in for a roller coaster ride” until there is more clarity about inflation, interest rates and geopolitical events.
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His advice, given the volatility of the market right now, is to remain diversified, and “do not try to catch a falling knife.”
FOX Business’ Talia Kaplan contributed to this report.