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If you're concerned because the Federal Reserve just raised interest rates again: Take a minute to get some perspective.
When the Federal Reserve raises interest rates to slow the economy and curb inflation, recession worries tend to surface. The fear is that the higher cost of money might brake the economy a bit too hard.
Agonizing over interest rates, the pace of inflation and the cost of groceries, gas and most everything else — and on top of that, the possibility of a recession — it's just not worth it.
Here's how to worry less.
If you're worried, take action
In a stock market trade, there's a buyer on one side of the transaction and a seller on the other. Each trader has a different perspective. Likewise, higher interest rates can be bad or good, depending on your situation.
To boil it down, rising rates are:
Bad if you're borrowing money or paying off debt.
Good if you're saving money or retired and living off of interest.
Worrying gets you nowhere. Instead, consider small but impactful moves to improve your financial situation.
For borrowers and savers
Borrowers will be on the hook for higher fees. Work to pay down debt to minimize the extra interest load and consider a balance transfer credit card to get an interest-free breather.
For home buyers and homeowners
If you're looking to buy a home or sell one, the mortgage rate environment has been pretty tough. The average rate on the 30-year mortgage has been nearly 7% in June and July, according to Freddie Mac's weekly rate survey. Costs have also gone up for homeowners with balances on home equity lines of credit, whose interest rates respond directly to changes in the federal funds rate.
For small-business owners
A slowing economy might negatively affect your sales. See if there are cost efficiencies you can implement to help weather any downturn.
Your cost of credit card borrowing will rise. If you use credit cards for some business expenses, you're likely to see higher payments due. Double-check your cost of goods, travel expenses and anything else you put on a card.
Variable-rate loans are likely to get more expensive. Explore refinancing to a fixed-rate term.
If you have a student loan
If you plan to take out a new private loan ahead of the fall semester, brace for higher interest rates. If you have an existing private student loan with a variable interest rate, your monthly payment may also rise.
Federal student loan interest rates aren't directly tied to the Fed's latest rate hike — but they're still at their highest in a decade. For the 2023-24 school year, new undergraduate loans have a 5.50% interest rate, up from 2.75% in 2020-21. Because federal student loan interest rates are fixed, borrowers with existing loans won't be affected.
Wait to refinance your student loans until rates drop, especially if you have federal loans. Otherwise, you'll miss out on perks like the government's one-time income-driven repayment account adjustment, which could erase remaining debt for some longtime borrowers and push millions more closer to loan forgiveness.
Options for personal loans
Personal loans often have fixed-rate terms, so current holders may have less to worry about when it comes to rising interest rates. But if you're shopping for a personal loan, getting one sooner rather than later may be in your favor.
Remember to shop with more than one lender to help get the best offer.
Meanwhile, minimize the impact of inflation on your life
Higher prices take a juicy chunk out of a paycheck. Nobody likes that. There are at least nine ways to protect your spending power from inflation. Here are five:
If you can, don't delay a major purchase. Prices could continue rising.
Cut back on voluntary spending. It doesn't have to be drastic. Just trim here or there.
Use membership cards to save on gasoline. Examples include Walmart+ (offering up to 10 cents off per gallon at participating stations) and GasBuddy (with discounts up to 25 cents per gallon). Rewards cards can offer cash back, too.
Renegotiate bills like streaming services and cell phone plans.
Ask for a raise.
These are small changes that can help cushion the blow to your cash.
And there's one big — and safe — money move that can earn you an inflation-adjusted return. Series I savings bonds are government-guaranteed, and the rates are keyed to inflation. They have a minimum holding period of one year, though there's a three-month interest penalty if held for less than five years.
A recession? You've already been through one or more
Everyone reading this has been through a recession.
Wrapped within the COVID-19 pandemic, the U.S. experienced a brief recession that peaked in the second quarter of 2020. That's a small blip on the radar compared with the Great Recession of 2008, fueled by the housing crash and subsequent financial crisis. It was a slow, 18-month economic crash.
Now the experts are debating if we're heading toward another financial setback. Rather than worry which is worse, the inflation disease or the slower-economy cure, take action: Choose one or two of the ideas above, and put them to work.