You’ve heard the saying, “what goes up, must come down.” This is true of interest rates, which means that interest rates must also go back up now that they’ve dropped down. We’re just coming out of a period of historically low interest rates, and the economy is strong. When that happens, the Federal Reserve usually elects to raise interest rates simply because people can afford it, and putting money back into interest rates helps maintain a good economy.
However, rising interest rates don’t always equal more out of your pocket. In fact, higher interest rates can actually help you on your journey to financial success. Here are 15 ways that consumers can prepare for — and benefit from — rising interest rates.
1. Understand
If you’re a beginner at investing, then it’s important to first familiarize yourself with how interest rates work. This doesn’t just apply to mortgage interest rates, but interest rates in general. Then you’ll have a greater sense of what advice you should heed and what advice to discard.
2. Reduce
Since it costs more money to carry debt when interest rates are high, now is the time to do whatever you can to reduce the amount of debt you have. Pay off credit cards as soon as possible since they are most subject to changing interest rates.
3. Buy now
If you’re thinking of making a major purchase but waiting for rates to go down, stop. There’s a good chance the Fed will raise interest rates again soon, so buy the home you’ve been wanting, take out a loan, or lease a new vehicle now. The longer you wait, the greater chance you’ll end up paying more interest.
4. Reallocate
If you currently have investments in long-term CDs and are able to move them around, allocating them to shorter-term funds may make you more money in less time. Consult a financial adviser if you think this may be a good match for you.
5. Save
If you’re a good saver, then rising interest rates are great for you, because it also means the return on your savings will be greater. Try some of the rest of the tips on this list to maximize your savings and make your money work for you.
6. Invest
No matter what you choose to invest in, whether it’s stocks, bonds, business, real estate, or anything else, now is a good time to take some measured financial risks to help you make your money work for you.
7. Surf the stock market
If you aren’t already invested in the stock market in some way, now may be a good time to do so. Public pensions are already invested there, so if you work for the government or have any kind of retirement account, you may already be benefiting from a solid stock market and rising interest rates.
8. Buy a short-term CD
If you prefer to invest in low-risk ventures, a short-term CD will make you more money than a long-term one currently will. If you are able to do so, consider switching.
9. Pay off debt
Yes, of course we’re going to suggest that you pay off debts if possible. Loans and credit card debt are about to sport some higher interest rates, so make sure you’re not about to pay more money for that steak dinner (plus interest) than you originally planned.
10. Diversify
If you have a stash of cash, no debt, one 401(k), and a solid income, you’re missing a huge opportunity by not diversifying your portfolio. If you tend to be a more fiscally conservative person and don’t want to take too many risks, make sure you consult a financial adviser to determine which investments may be right for you.
11. Shift
If you’re carrying balances on credit cards, consider transferring your balance to one interest-free card. Many credit cards offer introductory periods (usually around 18 months) at no interest. This may help you pay down a high-balance card more quickly.
12. Refinance
Before interest rates rise again, you may want to refinance your home or auto loan now rather than later if you were already planning on doing so. Additionally, if you bought your home before the period of historically low interest rates and haven’t yet refinanced, you may not be getting the best deal out there. Shop around and see if you can do better.
13. Pay off
Pay off any debts or loans that may have variable interest rates, such as an adjustable-rate mortgage (ARM). This also includes credit card debts, of course, since interest rates on those can change easily.
14. Keep it short
If you’re nervous about investing in this climate, consider only short-term investments that don’t lock you in for a decade at a time. Short-term investments can also yield more return in a shorter amount of time, allowing you to move on and invest in larger things, such as additional real estate.
15. Listen to your gut
People tend to forget this, but investing is personal. What works for your close friend or neighbor might not match your financial goals. When in doubt, think about your long-term financial goals, then work backward from there to determine your best financial path.