How to Protect Your Finances from an Interest Rate Increase
We all know that life can change in an instant. The same is true with finances and the economy – things can change quickly, leaving us scrambling to adjust. An interest rate increase is one such example of how our financial stability can be affected by changes beyond our control.
With an increase in interest rates, debt payments become more expensive, and savings accounts start to generate less income, making it difficult for households to stay afloat financially. Fortunately, there are steps you can take now to protect your finances from an unexpected interest rate increase.
In this article, we will explore ways you can budget, save, and invest wisely so that when rates go up, you’re ready for whatever comes next.
Assess Your Current Financial Situation
Before you can make any moves to protect yourself, you need to assess your current financial situation. Once the interest rate rises, it could become more difficult to meet your monthly payments or pay off any outstanding debts. Try to create a budget that is realistic and figure out what kind of costs you expect to have in the near future.
Establish Your Liquid Assets
When preparing for an interest rate increase, you need to have a certain amount of liquid assets available. Liquid assets are those that can be quickly and easily converted into cash, such as savings accounts, investments in stocks and bonds, or money market accounts. Having a portion of your wealth in liquid assets can help you quickly access money if needed.
Review Your Credit Card Statements
When was the last time you read through your credit card statement? With an interest rate rise, you can expect to pay more in interest on any outstanding balances. To mitigate this, make sure to pay off your credit card balance each month. If you can’t do this, then look for cards with a lower interest rate or transfer your balance to one that does.
Cut Unnecessary Spending and Track Expenses
Have you been spending lots of money on pure fun at Everygame Poker? Or maybe you have been spending too much on your boutique morning coffee? During a period of rising interest rates, it’s important to track and reduce unnecessary spending. Look for ways you can reduce expenses, such as eating out less or buying generic products instead of name brands.
Consider Investing in High Yield Savings Accounts or Money Market Funds
By now, you have probably realized that your savings aren’t going to get you very far with traditional savings accounts. One way to protect yourself from an interest rate increase is by investing in high-yield savings accounts or money market funds. These investments offer higher returns than traditional bank accounts but also come with greater risk. Do your research before investing, and carefully read the blueprint.
Create an Emergency Fund
When it comes to protecting your finances from unexpected events like an increase in interest rates, creating an emergency fund should be your first priority. This can help you stay afloat if the current financial climate makes it difficult for you to access credit or if you face any other unexpected expenses that arise due to the increased cost of borrowing money. Aim to save enough money in this emergency fund so that you can easily live off of it for at least six months without running into any financial trouble.
Pay Off Your Debts
If there is one thing that rising interest rates will do, it is make carrying debt more expensive. That is why before interest rates start going up, try to pay off as much of your debt as possible. Making extra payments on loans or credit cards with high-interest rates is particularly important since the longer those debts remain unpaid, the more expensive they become due to additional interest charges.
If you are unable to pay off all of your debts at once, aim for debt consolidation, where you take out a single loan with a lower interest rate than what is offered by multiple lenders and use this loan amount to settle all existing debts at once.
Lock in Fixed Rates Now
Another way of preparing for an increase in interest rates is by locking in fixed rates now while they are still low. If you plan on taking out any major loans, such as home loans or car loans, do so before the hike in interest rates kicks in. This way, you won’t have to worry about fluctuating monthly payments due to changing market conditions. Instead, you can focus on using your loan amount wisely and paying back the amount borrowed within the agreed-upon timeframe without having to worry about any sudden changes along the way.
Take Away
Preparing for an increase in interest rates doesn’t have to be stressful; following these simple steps will help ensure that when interests start going up, your finances will remain protected and unaffected by these external economic factors.
Of course, no one knows exactly when or how much interest rates will go up. Taking proactive steps like creating an emergency fund and repaying existing debts now will help ensure that whatever happens next time, you will be well prepared financially.
