Getting control of your family budget can be exceptionally difficult when your salary remains constant, but the cost of nearly everything is rising faster than in decades.
"Over the last couple of years, the world has experienced the highest inflation levels in more than four decades," according to Roosevelt Institute chief economist Joseph Stiglitz.
Bargain hunting may be your only hedge against inflation, but there are several steps you can take when dealing with high-interest rates, which cause people to pay more for credit card debt and variable rate home loans.
Inventory your interest rates
If you want to lower your interest rates, first, you must know the percentage you're paying on your home mortgage, car loan, and credit card. Then you need to determine if you can do better.
'When I'm looking for national rate averages, I rely on reputable sources, such as Bankrate.com," said Advancial Federal Credit Union President and CEO Brent Sheffield.
According to Bankrate, as of June 21, 2023, the average rates for credit cards, car loans, and mortgages are:
- Credit cards: 20.51%
- Car loans: 60-month – 7.08% New; 8.18% Used
- Home mortgages: 30-year fixed – 7.08%
"When determining where to get your next loan, I'd recommend that you shop around to see who has the lowest rate for the term and loan type you want," Sheffield said. "Credit Unions like Advancial usually offer lower rates than traditional banks since we're a not-for-profit organization. On top of searching for the best loan rates, it's also important to research customer service. Credit unions are known to provide better member service than banks since we're owned by our members, not by shareholders."
Credit Card Debt
"The average credit card debt balance per borrower is $5,910, as of fall 2022," according to Ramsey Solutions. "That's more than three times the average mortgage payment!"
Credit card companies may lower interest rates for customers who are longtime customers.
"It never hurts to call your financial institution to try and negotiate a lower rate on your credit card, said Advancial Federal Credit Union Katy branch manager Yolanda Martinez. "It probably won't work if you've just opened your credit card within the past year, but if you've had your card for several years and are in good standing with a good payment history, it may be worth a try," she said. "The worst thing they can say is no."
Try a balance transfer with 0% for a limited time.
Even in this time of high-interest rates, credit card companies often offer 0% for at least 12 months for balance transfers, but read the fine print; sometimes, there is a transfer fee.
"The transfer fee can be up to 5% of your total transfer amount," Martinez said. "Balance transfers are a great tool to help you pay off your high-interest balances and save, especially if you find somewhere like Advancial that doesn't charge a balance transfer fee," she added.
When it's right to refinance
Interest rates are their highest in 16 years. According to Bankrate, car loan rates haven't been this high since 2010, and home equity lines of credit are hitting their highest in over two decades.
In most cases, people with variable interest rates will want to lock in a fixed rate because the Fed seems unwilling to lower rates anytime soon.
"It's very difficult to predict where the market will be in the future," Sheffield said. "The safe choice is to choose a fixed rate in order to know exactly what your rate will be and how much you'll pay."
But, when looking at mortgages, there are times when variable rates are the best option.
"If you know for certain that you'll only be in your home for a short amount of time that falls within the lower rate period of the loan, a variable rate mortgage might be the best option for you," Sheffield said.
"However, it's always best to consult a mortgage or loan professional before deciding what type of loan best suits your needs."
When high-interest rates are a good thing
High-interest rates are great for people with enough cash to put into a high-rate account.
"A certificate of deposit, also known as a savings certificate at credit unions, is a great way to create additional income from interest or dividends on your extra savings," Martinez said. "These rates are typically much higher than standard savings account rates. While some banks and credit unions offer certificates that allow withdrawals with no penalties, most CDs and savings certificates have withdrawal penalties if you want to withdraw funds before the maturity date."
Consumers looking to access their cash while earning a higher interest rate may consider a money market account.
Editors Note: Advancial Federal Credit Union is a Covering Katy Sponsor.