Debt may become an even bigger pain to pay off soon. Here’s why—and what to do about it.
When the Federal Reserve (a.k.a. the “Fed”) raises rates that banks use to lend money to each other, it affects what lenders charge us for things like loans and credit cards. In December, the Fed raised those rates from .25-.50 percent to .50 to .75 percent. And they’re probably not done.
Would you believe us if we said this is actually a sign of a strong economy? Those near-zero rates we’ve enjoyed for years are how the Fed stimulates growth. (Lower rates make it cheaper to borrow money, which we then spend, giving the economy a boost.)
Now that the economy is stronger, the Fed can increase rates. Still, even if it does raise rates by .25 percent three more times in 2017, as it’s hinted at, the net increase would be just one percent.
Depends on what we’re doing with our money. If we’re taking out a new loan, like a mortgage, or currently have a variable-rate loan or credit card, higher rates mean we can expect to pay more.
But this could be good news for savers and investors. Higher interest rates mean we’ll earn more on our savings and some other investments, says Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. “Bonds, for instance, pay income, so as rates rise, the income they pay will rise.”
Panic! Just kidding. Don’t worry. We’re unlikely to feel a pinch because of interest rates going up anytime soon. They're still near historically low levels.
But here’s how to make the most of the situation.