What does the latest Federal interest rate hike mean for consumers?
The latest interest rate hike hopes to slow down consumer spending amid record-high inflation
CHICAGO (WLS) -- Another Federal Reserve interest rate hike Wednesday, increasing three-quarters of a percentage point.
The video featured is from a related report.
The bottom line is you could pay more on money on your credit cards if you carry a balance and pay higher interest rates on new auto and home loans, meaning you'll get less house or car for your money. But there are some things you can do to save.
The Federal Reserve is hoping increasing the interest rate for a third time will slow down consumer spending. If that happens, record- high inflation could go down, potentially making gas, food and other essentials less expensive. The problem is, the interest rate hikes will also cause higher prices on home and auto loans, as well as credit card payments.
"In the interim, in this sort of gray space, there's a lot of consumers that may be feeling the pinch from both ends. Increased expenses of items have been paying for a daily basis, and then increased interest on purchases that they made possibly years ago," said Thomas Nitzshe, of Money Management International, a non-profit group that helps people pay down credit card balances. Nitzshe explains how it adds up.
"For someone who's carrying $18,000 worth of credit card debt, which our client our average client carries that much when they come to us for help, it's going to mean about $4,500 added interest over the lifetime of repayment if you're only making the minimum payments," he said.
Nitzshe said consumers could see an increase in their minimum payment owned every month.
"I am just doing what I can to get by, I mean, I am trying my best to pay it -- trying every day," said Misha Hill.
"You gotta plan better, you have to spend less and change your life around a little bit," added Calli Bass.
If you have a big balance on your credit cards, first write out a budget of what you owe and what money is coming in and know your interest rates. Pay off the card with the highest interest rate and pay the minimum on the others.
"It's also a great idea to contact your creditors and ask for a lower interest rate. You know, a study found that about a third of consumers were successful in lowering your interest rate just by asking," Nitzshe suggested.
So how will the interest rate hike affect major purchases? For example, if you're about to buy a car and auto loan of $35,000 would have cost you about $661 a month earlier this year. Now, that's about $673 a month, which is $144 more a year for the same car.
For new auto and home loans, you may want to lower the amount burrowed, even if the bank said you can afford more. Also, increase your down payment, if you can.
Most existing auto and home loans are fixed rate and won't be affected but if you have a variable rate, you may want to refinance.
