How Higher Interest Rates Will Affect Consumer Finances-Debt, Savings and Investments?

1. Consumers Should Limit Borrowing Consumers should reduce discretionary spending during periods of higher rates and postpone any unnecessary borrowing as interest rates rise.

2. Avoid Carrying Large Balances On Your Credit Cards   Try cutting your debt with the avalanche method, which targets this high cost of debt first.

3. Move To Conventional Mortgages Versus ARMs Most prefer fixed-term mortgages with more predictable monthly payments.

4. Avoid Variable HELOC Loans Your HELOC is a revolving line of credit secured by the equity in your home, often used to pay for home improvement projects.

5. Car Loans May Not Go Much Higher The higher interest rates may not affect car loans as much as the continued chip supply constraints in the short term.

6. Avoid Variable Student Loans The rates for federal student fixed-term loans for college students move with the ten-year Treasury notes.

7. Savers Will  Earn More Income  In the last decade, it’s never been a good idea to stay put in one place (high yield savings versus Certificate of Deposit, for instance) for the long run.

8. US Personal Savings Rate May Go Higher Households were big savers during the pandemic, but the latest rate was 7.9% for December 2021, and more in line with 2019.

9. Consumers Will Not Earn A Windfall These FDIC-insured products are readily accessible for consumers to maintain emergency funds.

10. Where To Invest With Higher Rates Longer-term, rising interest rates will make bonds more attractive as money from maturing bonds goes into higher-yielding bonds.

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