David Lerner Associates: How Interest Rate Hikes Affect Your Financial Well-Being

For the first time in nearly a decade, the Federal Reserve announced an interest rate increase – from zero percent to .25 percent immediately with more increases to come in 2016. That quarter percent might seem insignificant, but it is going to impact your finances.

The major banks have already adjusted their prime lending rates upwards. If you are a preferred customer with an excellent record with your bank, your loan rate will only increase by .25 percent. However, the average American can expect to see the cost of debt rise in 2016.

Credit Cards

According to Federal Reserve data, consumers will now pay up to $192 million more a month on their credit card balances. Bankrate.com predicts that credit card interest rates will go from 15% to 17% in the near future. That means it will take longer to pay off a credit card debt, and your monthly payments will increase.

Student Loans

If you have federal student loan debt with a fixed rate (meaning, you borrowed after July 1, 2006, from the government), your interest rate will remain the same. If you have a private student loan with a locked-in fixed rate, your interest rate will remain the same. However, if you have a variable rate of any flavor (private or federal), you can expect to see an increase in your monthly payment.

Mortgages

An Adjustable Rate Mortgage is just that – adjustable. That means it is not a fixed rate and will react to market forces. So this type of mortgage is likely to be most affected by the rate increase.

How to Plan for 2016

• Refinance out of adjustable rate mortgages and lock in a fixed rate.
• Find zero percent and other low-rate credit card balance-transfer offers while they are still available. This provides the opportunity to accelerate debt repayment and get rid of your credit card debt altogether.
• Work out a plan to pay down your home equity line of credit as soon as you can, or consider refinancing it into a fixed-rate loan. It may have been a great idea in a low interest rate situation, but as rates rise, it could become a burden.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
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