NEW YORK, January 13, 2022 (Newswire.com) - Credello: On March 3, 2020, the Federal Reserve Bank (Fed) lowered the federal funds rate that banks use to borrow from one another. By doing that, they reduced interest rates for consumer borrowers. That situation is about to change. Following their December meeting, two-thirds of the Fed's Board of Governors projected up to three interest rate hikes in 2022.
The first Fed rate hike is expected in March, so now is a good time to take advantage of low rates and apply for a debt consolidation loan to pay off your credit cards. Homeowners might want to look at refinancing and homebuyers should accelerate their timetable. These are areas that will be impacted by a federal rate hike, so taking immediate action is recommended.
Personal Loan Interest Rates for Debt Consolidation
According to a Fed report released in October 2021, personal loan interest rates fell to an annual low of 9.39% in Q3 of 2021. Don't expect that trend to continue. Prior to raising interest rates next year, the Fed has already begun tapering bond purchases, a move that will affect long-term borrowing (mortgages) first, but it will trickle down to short-term personal loans.
The average credit card interest rate, according to Bankrate, has fallen to 16.3%, down from 17.85%. Credit card interest is a variable rate that's based on the Fed's prime rate, so an interest rate hike on their side will make your credit card debt more expensive. Applying for a debt consolidation loan now could save you hundreds of dollars.
Debt consolidation to eliminate credit card debt should be a step taken in conjunction with an overhaul of spending practices. Once you take out a loan to pay off your cards, stop using them. This is a recommended move for consumers who want to avoid getting deeply into debt again. It's also a good way to offset inflation, which is expected to continue in 2022.
Now is the Time to Refinance Your Mortgage
Homeowners who have not done this already should consider refinancing their mortgage before the first interest rate hike is announced. Fed tapering is expected to raise mortgage rates, and that has already begun. The average 30-year fixed-rate mortgage rate is up to 3.24% as of the writing of this article. It's expected to go to 4% by the end of next year.
Don't wait. The holiday season may not be your preferred time of year to conduct business, but time is not on your side if you want a better rate on your home mortgage. The Fed has been reluctant to raise rates, trying to downplay inflation as "transitory." Their December meeting results revealed a dramatic shift in that thinking. Interest rates are going up next year.
Savings Account Returns May Increase
One area that consumers may see improvement in is savings account returns. They've been stuck at 0.06% since the beginning of the pandemic. The Fed doesn't really influence that, but financial institutions often use the federal funds rate as a benchmark for savings rates. An increase by the Fed could add a few pennies into your savings account.
Like savings, the Fed also has no control over investment returns, though their maneuvering through this crisis could influence the stock market. If you see extreme market swings, try to hold off on reacting too soon to them. The stock market corrects itself over time. For now, focus on debt consolidation and refinancing your mortgage.