GreenPath: Interest rate hike could make credit, mortgages even more expensive
FARMINGTON HILLS, MI (March 27, 2023) — To lower inflation, the Federal Reserve has announced another quarter-point (0.25) interest rate increase. This marks the ninth consecutive rate hike since March 2022. Inflation has fallen since last year but remains higher than the Fed’s target rate of 2% annually. This action will further increase the cost of credit — especially credit cards (just over 20% versus 16% last year), student loans (at 4.99% versus 3.73%) and auto financing (6.48% versus 3.86%).
The rate hike will also increase mortgage rates in a housing market that has showed signs of cooling. Higher rates could affect affordability for some homebuyers, especially lower-income and first-time buyers who might be leery about steep monthly payments. For home sellers, the rate hike could reduce buyer demand and/or result in lower offers.
Here are ways that GreenPath Financial Wellness, a nonprofit financial counseling organization, suggests how to weather the impact of the recent rate hike.
Start (or revisit) your budget
As households continue to cope with the high cost of gas and groceries, a budget or spending plan can help you map out your monthly income (what’s coming in) and your expenses (what’s going out). Regularly monitoring these helps you see how much more you’re paying for necessities, set a new normal and plan accordingly.
Pay down high-interest debt
With rates still climbing, now is a really good time to pay down high-interest credit card debt. Figure out within your budget how you can deploy the “avalanche method”, where you pay down the loan or credit card balance with the highest interest rate first. Not only will you save money in interest, but you can also give your credit score a boost.
In 2022, GreenPath managed more than 49,000 debt management plans, and helped 10,253 people pay their debts in full. GreenPath works with creditors to lower interest rates, bring accounts current, waive and/or eliminate fees and stop collection calls – helping people get to a place where they can see progress and make progress.
Place emergency savings in a high-yield savings account
Banks may raise interest rates on high-yield savings accounts. Some online banks are now offering rates between 4 and 5 percent, up significantly from 1-2 years ago. By creating an account or moving your emergency savings into a high-yield savings account, you’ll see a greater, faster return and be more prepared to manage a sudden, unplanned expense, grow college savings or retirement funds.
Shop around for the best rate. Be cautious with ARMs. Consider a HELOC.
GreenPath provided 14,908 Pre-Purchase services in 2022, assisting homebuyers in the home purchasing process. When considering a mortgage, it’s always good to look for the lowest rate for which you qualify. As new adjustable mortgage products are now structured to change every six months, an adjustable-rate mortgage (ARM) may not provide the affordable, up-front savings you expect, in addition to the threat of higher rates in future years. As refinancing has slowed, lenders may be eager to offer a Home Equity Line of Credit (HELOC) to homeowners seeking to tap home equity.
If you are concerned about debt and the rising cost of credit, contact GreenPath (800-550-1961 or www.Greenpath.org) and the HOPE hotline (888-995-4673 or www.995hope.org) for a free initial counseling session. Certified, compassionate counselors can look at a person’s whole financial picture and help identify options to manage debt and reduce stress.
About GreenPath Financial Wellness
As one of the largest financial counseling agencies in the nation, for more than 60 years, GreenPath Financial Wellness has assisted millions of people with debt and credit management, student loans, homeownership, and foreclosure prevention. Headquartered in Michigan, GreenPath and its affiliates work directly with individuals and 580+ credit union, bank, retirement/insurance and employer partners across the U.S. from more than 20 locations and through phone access and online tools. GreenPath is a member of the National Foundation for Credit Counseling and is accredited by the Council on Accreditation. The GreenPath family of companies now include CONSUMER, Homeownership Preservation Foundation (995-HOPE), Clarifi, and Rural Dynamics, Inc. To learn more, visit www.greenpath.org or call 800-550-1961. Follow the nonprofit on Facebook and Instagram @greenpathfinancial and on Twitter @GreenPath.
