Because the U.S. economy has largely recovered from the Great Recession, the Federal Reserve is expected to increase interest rates this year. Interest rates usually rise when people can afford to spend more.
What does that mean for you? While higher interest rates make borrowing more expensive, you can take advantage of higher rates if you’re financially responsible. Here are five ways:
#1: Research, Research, Research
First things first. Before you can take advantage of rate increases, you have to understand how interest rates work. There are many types of interest rates—from simple interest to compound rates.
Knowing the difference between one and the other can save you lots of money.
#2: Pay Off Debt
When interest rates rise, it’s more expensive to carry debt. Now is the time to pay it off.
Reduce your credit card debt. Pay off your car loans. Keep track of your liabilities, and get back in the black one by one. Credit cards are especially vulnerable to changing rates, so spend carefully.
#3: Save Money
If you enjoy saving money, then higher interest rates work to your advantage. Stash more of your money in a savings account, and see it grow. Create a monthly savings budget to cut down on unnecessary purchases.
#4: Make That Big Buy Now
If you’re not the best saver, now is the time to make the large purchase you’ve been waiting for. Whether it’s buying a new house or leasing a fancy car, drop the money before higher rates lead to higher payments down the road.
The longer you wait, the more interest you’ll pay.
#5: Trust Your Gut
Making any financial decision is very personal. Whether you’re spending, saving, or investing, listen to your gut. While it doesn’t hurt asking for outside help, what works for your neighbor or a coworker might not work for you.
If you have too many doubts about a decision, pump the brakes!