How to Combat the Rising Cost of Credit
By Evans Attwell
(Senior Vice President)
Frost
After a two-year period of exceptionally low interest rates, the Federal Reserve has spent most of 2022 increasing rates to counteract skyrocketing inflation. And while these are still well within the normal historic range, significant rate increases tend to create an economic ripple effect – impacting everything from consumer spending to business development to the stock and bond markets. Aside from investment considerations, rising interest rates are especially noteworthy for another reason: borrowing money becomes more expensive.After a two-year period of exceptionally low interest rates, the Federal Reserve has spent most of 2022 increasing rates to counteract skyrocketing inflation. And while these are still well within the normal historic range, significant rate increases tend to create an economic ripple effect – impacting everything from consumer spending to business development to the stock and bond markets. Aside from investment considerations, rising interest rates are especially noteworthy for another reason: borrowing money becomes more expensive.
Even consumers with a solid financial footing may use debt as a tool to finance important purchases, making the rising cost of credit relevant to everyone. While a few extra percentage points probably won’t put you in dire straits, it’s worth considering how higher interest could affect your personal financial decisions over the next year. Here are three money moves to consider.
- Look into alternative financing. Think twice about selling off investments to make major purchases in cash. This could trigger capital gains taxes or derail other financial goals. First, talk to your banker to explore options like a personal line of credit or home equity line of credit (HELOC), which can still be obtained at relatively low rates.
- Refinance variable rate loans. If you have an adjustable-rate mortgage (ARM) or private student loans with a fluctuating rate, it might make sense to refinance those balances to lock in a fixed rate before the Fed raises rates yet again.
- Take advantage of the flip side. Keep in mind you’re not the only one paying higher interest rates. Banks now have to pay you more to access your money, which presents some opportunities. For example, increasing the cash in your emergency fund or purchasing certificates of deposit (CDs) could help hedge against volatility in the investment markets.
Before making any major financial decisions, be sure to speak with your Frost banker who can provide strategic counsel based on your individual needs.
Would you like more information? Contact Evans at 713.388.1367 or evans.attwell@frostbank.com.
Deposit and loan products are offered through Frost Bank, Member FDIC.