When it comes to the financial markets, there are few things that are certain. But one thing that you can count on in 2018 is that interest rates are going to go up.
The Federal Reserve historically tries to keep interest rates between 2% and 5%. That’s the range that helps maintain economic growth and keeps the unemployment rate low. But the federal funds rate was lowered to 0.25% in December of 2008 to cope with the recession and has been increased gradually with the most recent announcement in December 2017 to a 1.25 to 1.50% range. The Federal Reserve has indicated that increases are likely to come in the future.
Whether you currently are carrying student loan debt, thinking about taking out a personal loan or saving money, you’ll want to know how you can best prepare for and take advantage of rising rates in 2018.
Refinance Variable Rate Student Loans
If you’re one of the many Americans with a significant amount of student loan debt, rising interest rates should be on your mind. This is especially the case if you have student loans with a variable interest rate. Unlike fixed interest rates which stay the same for the life of your loan, variable interest rates can go up and down depending on fluctuations in interest rates. That means that if the Federal Reserve raises rates, as it is almost certain that they will do, then your student loans payments are going to get more expensive. That won’t just increase the amount that you’ll pay on a monthly basis, but it will also increase how much interest you’ll pay over the life of your loan.
To get ahead of rising rates, you might want to refinance your student loans now. Not only will you avoid the rate increases, but you’ll also be able to lock in a lower fixed interest rate now before those rates on new loans also increase.
Luckily, refinancing your student loans is relatively easy. If you have good credit and stable income, then you can likely get lower rates on a new fixed rate loan than you’re currently paying. Many lenders also don’t charge origination fees or prepayment fees on student loan refinance, which means that you could save a significant amount of money by doing so.
One great student loan refinance option is Laurel Road. Laurel Road provides student loan refinance loans, personal loans, and mortgages. They’re a division of Darien Rowayton Bank and are available to customers in all 50 states. The best part? Their borrowers see an average savings of $20,000 over the life of their loan when they refinance.
Laurel Road is great because their fixed interest rates begin as low as 3.95% to 5.90% for a five-year term and only go as high as 5.15% to 6.99% for a 20-year term. Those are great rates to lock in now and doing so will mean you can stop worrying about your student loans and whether they’ll go up because of rising rates.
Refinance Variable Credit Cards
Credit cards might be convenient, but they’re also notorious for being one of the most expensive ways to borrow money. That’s partly because credit card interest rates are often very high, but it’s also because they are almost always variable rates. That means that if the Federal Reserve changes their rates, that will likely affect how much you pay on your credit cards. If you’re currently carrying debt on your credit cards that will mean that your monthly payment is about to get more expensive and that it will be harder to pay off your debt since more of your payment will be going towards the interest rather than towards the amount that you borrowed.
But that can be easily fixed if you refinance your credit card debt with a fixed rate personal loan or consolidation loan. A fixed rate personal loan won’t just give you a lower interest rate, but it will also ensure that your rate and payment never changes over the life of your loan because of rising rates.
If you’re a saver, the good news is that you’re going to be earning more interest on your deposits. Now is a great time to put or keep your money in an account that offers a high-interest rate as that rate could potentially increase.
Not earning enough in your savings account? Look into online savings accounts which often offer better rates and will allow you to take advantage of raising rates even more.
One thing to be careful of is that you don’t lock yourself into a long-term certificate of deposit now before rates increase. The last thing you want is to have to leave your money in a CD that is paying much less than you could get or pay a penalty to take that money out. You may also consider buying an adjustable rate CD which can increase if interest rates increase or put your money into short-term CDs until the Federal Reserve raises their rates.
Guest post written by Grant Wing of LendEDU