The Fed hiked rates again this week by 3/4 percent and mortgage rates have seen their biggest rise in 40 years. Credit cards and car loans are also increasing.
LEILA FADEL, HOST:
Nowadays, it’s getting a lot more expensive to buy a house, car, or anything on credit because interest rates are going through the roof.
STEVE INSKEEP, HOST:
And the Federal Reserve hiked interest rates again this week by three-quarters of a percentage point.
FADEL: NPR’s Chris Arnold joins us now to talk about what this means for all of us. Hello Chris.
CHRIS ARNOLD, BYLINE: Hey Leila.
FADEL: OK. So the Fed just hiked rates again. What will the real impact be for most people?
ARNOLD: Well, like you said, I mean, when the Fed hikes rates, it affects a lot of types of borrowing. And we shouldn’t tell everyone. You know, if you got a car loan at a fixed rate two years ago, that doesn’t change. But other forms of variable-rate debt, like a home equity line of credit or credit card debt, are getting more and more expensive. It just went one step higher. And of course taking on new debt, like a new mortgage — mortgages have seen their biggest jump in 40 years this year. So it’s gotten a lot more expensive.
FADEL: Okay, what’s the best way for people to deal with all of this? What should you do when faced with this sharp increase in the cost of borrowing?
ARNOLD: I spoke to a personal finance expert at NerdWallet about this, and her name is Sara Rathner. And here’s what she recommends.
SARA RATHNER: What’s really important for any individual is to assess the debt you have and how much that debt is costing you and make a plan for how to get rid of that debt as quickly as possible, especially if it is itself high-interest debt.
ARNOLD: So again, if you already have a fixed-rate mortgage — let’s say you got it a few years ago, it’s 3% — you’re fine. Don’t worry. But by the way, if you have a lot of money on credit cards, that’s always a bad idea.
ARNOLD: They paid maybe 16 or 20% before all this happened, you know, but it’s even higher now. Now it’s even worse. But you can turn lemons into lemonade if you use that as a motivation to pay off that debt. Here’s Rathner again.
RATHNER: If you have existing credit card debt, make a plan to pay it off as aggressively as your budget allows. And some months you may have more money to spend than others. I would also say if you have credit card debt, stop using your credit cards.
ARNOLD: And that’s because it’s a lot harder to spend more money than you actually have if you’re paying for everything in cash.
FADEL: Always good advice. So I guess it’s a bad time to take on new debt.
ARNOLD: Absolutely, particularly large amounts of money. You don’t want to borrow large amounts of money like you would when buying a house – also a terrible time to buy a car. Used cars are actually very expensive. Car loans are expensive. I spoke to TR Brooks who lives near Boise, Idaho. And he and his wife are desperate for a newer car. You’ve got this 20-year-old Honda Civic that’s got some issues.
TR BROOKS: How much time do you have? A spot is welded to the engine block to prevent it from exploding. There is rust in about five or six different places. The color comes off. Perhaps most annoyingly, the sun visor just won’t stay up anymore, so it’s always hovering menacingly at eye level.
ARNOLD: He has to stick tape on the visor. But even with that, they will wait, not sell the car and just keep driving it into the ground because it’s just too expensive to buy a new one now.
FADEL: OK, Chris, I can’t let you go until you give us something, some kind of silver lining, to hold on to.
Arnold: Sure. I mean just hurry, if you can save and invest for the long term, now is actually a good time. Shares are down 20%. They are cheaper than a year ago. Bonds really do give better returns than they have in years if you buy them now. So open a retirement account if you don’t already have one.
FADEL: NPR’s Chris Arnold, thanks.
ARNOLD: Thank you, Leila.
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