When Short Term Interest Rates Rise – What Should I Do?
June 16, 2011One of the questions I ask the attendees of my workshops is, “Where do you think interest rates will be going in the future?” The overwhelming majority state that they feel rates are going nowhere but up. Now, I certainly appreciate that there could be an outside chance that rates may dip from where they are, but that is not as likely as rates going up (in my humble opinion). So, if in fact we are moving to higher rates, what are some things you can do now to take advantage of the current rate environment? Check out the tips below to see if any of these apply. Note: while they may seem like a “no-brainer,” it’s those types of actions that we often don’t take.
Call your credit card providers: With the average credit card rate at around 14%, this will be an area that a hike in short term rates can really impact your wallet. Let’s say you owe $3000 on a 14% credit card, and you are making $40 monthly payments by a mere 1% increase in rates (going to 15%), all else being equal you could end up paying on that card for an additional 3+ years! By calling your credit card provider, you may be able to negotiate a lower rate now so that when rates do go up, you may not be affected as much. Or better yet, see if you qualify for a balance transfer (be aware of fees associated with that option!).
Consider refinancing your auto loan: This may not impact those of you who qualified for the great rates the dealers were offering, not so long ago (to get us to buy, those sneaky dealers!), but if you still have a decent amount of time left to pay on your loan – say 3 years or more – and you have a higher rate (think 8% or higher), consider the benefits of refinancing. For example, assume you owe $10,000 at 8% and you have 3 years left to pay, and then decide to refinance your loan for 3 years at 6%, you could save yourself upwards of $300 in interest! (Note: keep in mind that there may be fees to refinance.)
Look at maximizing your savings: Okay, we’re all sick of the “point yuck” we are getting on our savings accounts, but the good news for savers is that when short term rates go up, so do the savings, money market and Certificate of Deposit rates. So, the action step here is to shop around when rates start going up. If you’re not committed to your bank/credit union, check out some online financial institutions. Because there costs are generally lower, they often have higher rates than your everyday bank/credit union. A good place to get an idea of what rates are out there now (and in the future) is, www.bankrate.com.
Again, nobody knows for sure when rates will rise, but as several knowledgeable people I know have stated, “Preparation is the key ingredient to success.”