Chairman Jerome Powell (pictured) and the other policymakers at the Federal Reserve just said again, after their recent December meeting, that they'll keep holding a key interest rate near zero.
But only for now.
The officials also indicated that they expect to raise interest rates three times in 2022. The central bankers are concerned about inflation: Prices in November were up a stiff 6.8% from a year earlier, making for the fastest inflation rate in 39 years.
For consumers, looming rate hikes mean now may be the time to splurge on something fun — or take out a loan for something practical, like a new car to replace an old pile o' junk that won't start anymore. Here are five money moves you should make before rates rise.
1. Refinance your home loan
Mortgage rates fell to record lows during the pandemic, but more recently they've been going through ups and downs.
While 30-year mortgage rates are still at historically low levels, averaging around 3%, the Mortgage Bankers Association is predicting rates will rise to 4% next year — which means it's time to stop procrastinating if you’ve been mulling a refinance.
Chances are, you're still due for a refi. More than three-quarters of homeowners never refinanced at the low rates available during the first year of the pandemic, a Zillow survey found.
The same study revealed that nearly half those who did take out new and cheaper loans are now saving $300 or more each month.
2. Work on your credit score
While today's low interest rates make it easier to take out loans, you'll find it more expensive to borrow once rates go up.
Today, it's easy to take a free peek at your credit score and see if it needs work.
You may need to pay down existing debt and take other steps to raise your score, to improve your chances of borrowing at favorable rates once the Fed starts tightening credit.
Boosting your credit score a few hundred points will make you a more attractive borrower to all types of lenders – from credit-card issuers to those offering mortgages.
3. Refinance your student loans
Federal student loan payments and interest are now paused until May 1, and some prominent Democratic lawmakers, including Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer, are still pushing President Joe Biden to provide more relief and forgive up to $50,000 in student debt per borrower.
Meanwhile, Americans with debt from private student loans have remained on the hook for their monthly minimum payments.
If you're in that group, refinancing to a lower rate or shorter term could save you thousands in interest fees and shave years off your debt. Student loan refinance rates have been at or near all-time lows in recent weeks.
To maximize your savings, compare loan offers from multiple lenders, then lock in the lowest refinance rate you qualify for.
4. Consolidate your debt
The pandemic made it difficult for Americans to travel, eat in restaurants or spend on retail purchases, and many used the money they didn't spend on those activities to increase their savings and pay down debt.
The number of consumers who paid off their credit card balances in full every month reached an all-time high of 35.1% late in 2020, according to a report from the American Bankers Association.
Still, many households are continuing to struggle. If you’ve been relying on your credit cards to make ends meet, the expensive interest adds up quickly.
You may want to consider rolling your balances into a lower-cost debt consolidation loan, which could help you save a substantial amount of interest and even get out of debt sooner.
5. Ride the red-hot stock market
Interest rates are so low that the rates on savings accounts will remain puny, even if 2022 brings a trio of Fed rate hikes.
If you’ve got the appetite to take on a bit more risk, consider putting some of your savings into investments. Wall Street is riding out the year with new all-time highs.
If you don’t have much money to play with, you can download a popular app that helps you invest your “spare change” from everyday purchases, and grow your pennies in a diversified portfolio.
Or, if you’re still apprehensive about the stock market, you could look into investing in fine art, which is a real physical asset with little connection to the stock market. Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.