With Goldman Sachs predicting that the Federal Reserve will raise its benchmark interest rate by a full percentage point this year, you might be worrying that interest rate hikes could affect your finances.
The federal funds rate, which is set by the central bank, is the overnight interest rate at which banks borrow from>1. Refinance your home loans
You could find mortgages with around 3% interest for most of 2021, but the Mortgage Bankers Association is predicting that rates will rise to 4% this year, which could make monthly payments>2. Refinance your private student loans
While borrowers with private loans don't qualify for the Biden administration's pause>3. Pay down your credit card debt
The average interest rate for credit cards is about 16% now, but with looming rate hikes, those rates could be back around 17% by the end of the year, according to Ted Rossman, a senior industry analyst at CreditCards.com.
While that may>4. Improve your credit score
Since lenders use your credit score to determine what interest rates you'll pay on loans, the easiest way to offset benchmark interest rate increases is by improving your credit score.
Credit cards are a good example of how this works, especially since banks can raise your rates at any time, provided that they give you 45 days notice.
Say you owe a balance of $6,194, the national average. With a good credit score of 660 to 719, you'd pay $1,983 in interest alone if you made $200 monthly payments, according to CNBC Select. That's nearly $700 less than what you'd pay in interest with a subprime credit score of 580 to 619.
To keep your credit score high, focus on paying off debt and making on-time payments on your outstanding balance every month. You can find more tips on improving your credit score here.
