Rising Interest Rates
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People can guard themselves against rising interest rates by taking some effective steps to avoid economic hardships. The rising interest rates can affect mortgage rates, credit card debt and interest rates on loan. Simply speaking, the rise in interest rates can affect your personal finances. According to the US Fed in 2009, a household in the US has $20,000 of average debt, excluding mortgage, mostly on home equity line of credit and credit card debt.[br]
Preparing for Rising Interest Rates
If you are finding it difficult to pay your credit card bills, or only making the minimum payment, rising interest rates will only increase your woes. As the interest rate rises, more money will go towards interest payment, thus leaving lesser share for principal amount payment. You can, however, handle the situation well with these tips:
Credit Card Payments: Begin paying your credit card bill amount on time and in full if you have been paying only the minimum amount. Do everything possible, such as shrinking your budget and reducing unnecessary spending, to make this possible. Consider transferring your credit card balance to a low-interest credit card. Even fixed rate credit cards are not spared of rising interest rates, since banks need only 15 days notice to raise the fixed rate credit card interest rates.[br]
Home Equity Line of Credit: You can consider a home equity loan to pay back your home equity line of credit if you expect further increase in interest rates. During the period of rising interest rate, the interest rate on your equity line of credit will increase since the rates on home equity lines of credit are inline with the prime rate. If you are planning to live in your house for five years or more and if you have an adjustable rate mortgage, you can consider refinancing at a lower fixed rate.
The best way forward to deal with the rising interest rates is to save more and spend less. If you are an investor, you can benefit from the rising interest rates by investing in short-term corporate bonds or any other fixed income securities.
