What to Do As Interest Rates Rise - Page 4 of 4
Magazine

What to Do As Interest Rates Rise

to consolidate their debts. The interest rates on these forms of credit are lower than the average credit card and they’re tax-deductible. But as rates go up, using your house to pay off debt may not be wise. Why refinance and extend the term of your first mortgage?

In addition, after you refinance, “you’ve tied up your home equity for debt that was previously unsecured. So you up the ante in terms of consequences of default,” says Greg McBride, senior financial analyst at Bankrate.com. Also, ask yourself if it makes sense to take out a 10-year home equity loan to pay off credit card debt that could possibly be paid off much sooner.

As for credit cards -typically the most expensive debt anyone can have -even a fixed-rate card doesn’t protect you from higher interest rates, says McBride. When banks raise their prime interest rate, fixed-rate cards adjust like variable-rate cards, only at less frequent intervals. In June, a standard fixed-rate credit card carried an average interest rate of 12.87%.

It’s always a good idea to take advantage of offers to transfer your credit card balances to a card with a low rate or one that won’t charge you any interest for a limited period of time. As long as you can pay off the balances in full while the rate applies, you’ll avoid the high interest rate.

Depending on your risk tolerance, rising interest rates don’t have to be bad news. In fact, for those who have been earning little or nothing on their money market and savings accounts, rising interest rates are welcome news because the interest that those accounts earn is likely to be higher as well. With a little planning, just about everyone can benefit from rising interest rates.


×