The Federal Reserve has just raised its rates. This is how Suze Orman says to handle it

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Could this advice from Suze Orman help protect your finances as rates rise?

Key points

  • The Federal Reserve just announced the largest interest rate hike since 2000.
  • The reference interest rate increases by half a percentage point.
  • Suze Orman provided advice on managing money as rates rise, including recommending a balance transfer.

On Wednesday, the Federal Reserve announced that it was raising its benchmark interest rate by half a percentage point. With rates hovering between 0% and 0.25% at the height of the pandemic, the Federal Reserve raised rates in mid-March and again in May. The two increases — the first since 2018 — took the federal funds rate between 0.75% and 1.00%.

Unsurprisingly, such an increase in the federal funds rate will affect your finances significantly. You’ll want to make smart financial decisions as rates rise, and some advice from Suze Orman could potentially help you decide what steps to take to protect your finances as rates rise. Here’s what Orman suggests.

Make a plan to deal with credit card debt

As Orman explains, credit cardstyle=”text-decoration: underline”> apply variable interest rates on outstanding balances. Therefore, an increase in the federal funds rate means that you will have to pay more interest on your credit card. This will make it more expensive to pay off the money you owe on your credit cards.

She has two suggestions for dealing with it. The first is to call your card company and ask for a lower rate. “Not many people ask, but surveys show that when they do, they usually get a discount,” Orman explained.

Second, she also advises taking advantage of a balance transfer offerstyle=”text decoration: underline”> if you qualify for one. Balance transfer cards allow you to pay an introductory rate of 0% on a transferred balance, usually for a period of approximately one year.

If you can transfer money from a high interest rate card to a 0% rate card, more of your money will go to paying off the principal and paying off the debt should be less expensive. However, Orman warns that you’ll need a “strong FICO credit score” to be eligible.

Understand the impact on other loans

It’s not just your credit cards that could be affected by rising rates. Orman warned that auto loan rates tend to move with the federal funds rate. This means that if you have a variable rate car loan or plan to borrow with a fixed rate loan in the future, you will pay more. And these additional borrowing costs come on top of the sharp rise in the price of new and used cars that has occurred this year due to high demand and supply chain issues.

The good news is that existing owners benefiting from a fixed rate Mortgagesstyle=”text-decoration: underline”> will not be affected as their rate is blocked. However, those planning to buy a home in the future will not be so lucky. “If you’re looking for a new home, you need to budget for the potential for higher rates,” Orman warned. “And if you’re about to make an offer, you might consider locking in your interest rate with your lender, to protect against drifting even higher in the coming weeks.”

This advice from Orman on how the Federal Reserve might affect borrowing costs is important. If you have credit cards or are planning to take out a car or home loan soon, you should seriously consider heeding his words and planning for higher rates so you can adjust your budget to account for the impact.

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