The Federal Reserve offered in yet another interest rate hike last week, this the second in three months. With the economy improving and unemployment rates falling, interest rates are on the rise.
What to do Before an Interest Rate Hike
In fact, the Federal Reserve is planning on increasing interest rates three times in 2017 and an additional three times in 2018. What does that mean for you? It means you need to take action right now before interest rates go up. Here are five smart things to do ahead of an interest rate hike.
1. Buy a car – If you have been thinking about buying a new car you should do so now. The truth is that car loans will be one of the first short-term loan types that will be hit with higher interest rates.
While a half of a percentage point might not seem like much, it does add up. With car loans now lasting up to seven years, and the prices of new cars and trucks on the rise, every little bit you can save on interest is money in your pocket.
2. Refinance or buy a new home – This goes hand-in-hand with the auto loan. Now is a great time to buy or refinance a new home before the interest rate hike. Again, you may only be looking at a 1 percent increase in mortgage interest rates, but that 1 percent is more than you realize.
For example, if you wanted to buy a $175,000 dollar home and planned on getting a 30-year mortgage, an additional 1 percent in your interest rate would cost you an additional $40,000 over the term of the loan.
3. Consider selling tangible assets used to hedge inflation – If have invested in anything like gold or silver or even oil, you may want to consider selling it now. These can be great investments when inflation is high and interest rates are low, but that is changing.
When interest rates go up, inflation comes down. That’s one of the reasons the Federal Reserve has an interest rate hike, to lower inflation. The issue for gold, silver, and oil investors is that these types of investments tend to lose value as inflation decreases and interest rates go up.
4. Swap foreign currencies for U.S. dollars – If you have invested in any foreign currencies, now is a good time to make the switch to U.S. dollars. As interest rates in the United States go up, the value of the U.S. dollar does likewise.
This means that foreign investors will jump into the market and buy U.S. bonds and T-bills. This will, in turn, increase the value of the dollar even higher.
5. Pay off your credit cards and other small loans – Like auto loans, credit card interest rates and other outstanding small debt will see an interest in interest rates almost immediately. This means a couple of things for you. You should do what you can to pay off any outstanding debt you have, like credit card debt, and work to increase your credit score.
As interest rates go up, your credit score becomes even more important because only those with the very best credit scores will have access to the lowest interest rates. That means if your credit score is only okay, you will take an even bigger hit as interest rates go up and you apply for new credit.
An interest rate hike isn’t all bad. You just need to act quickly and reduce any risk that you may face. With a little planning, you can actually come out ahead and protect your investments and bank account for years to come.
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