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The Federal Reserve is going to raise interest rates again. Protect your money before


These are the key moves that financial experts recommend consumers to pay off debt and strengthen their budget in the face of a possible recession.

By Carmen Reinicke —

CNBC + Acorns

Citizens are facing a period of rapidly rising interest rates for the first time in years in the United States.

The Federal Reserve (Fed) published the minutes of its last meeting, indicating that the central bank plans to make more rate hikes of 50 basis points this year, probably in each of the meetings that remain on the calendar.

In an effort to curb inflation, the Fed could also raise interest rates more than the market currently expects.

The minutes correspond to the meeting of the central bank in early May, in which it raised its interest rate by half a point.

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As rates rise, there are a few key money moves that financial experts recommend to consumers to put themselves in a better financial position.

In general, it is about paying off debts and bolstering personal budgets to be able to withstand any sudden shock to the economy.

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“If your New Year's resolution was to create a family budget, you may need an update and revision,” said Cathy Schaeffer, certified financial planner.

Now is "an opportunity to really look at your personal budget and identify some ways to pay down your debt more aggressively, as these rate hikes are expected to continue," she added.

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pay your debts

Some borrowers need to be especially careful.

That includes anyone who wants to buy a home, is buying a car or has credit card debt, according to Lauren Anastasio, director of financial advice at Stash.

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“If you're buying a home, you might want to ask your lender if you can lock in your rate now,” he said.

"Sometimes the lender, for a flat fee, will let you lock in today's rate, even if you're not going to close for a few months," she added.

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Some borrowers are considering

variable-rate mortgages,

which offer lower initial rates but end up reverting to market conditions.

People who had adjustable-rate mortgages and are nearing the end of that period may want to consider refinancing to a fixed rate.

Car buyers may want to

stick with the newer models

and avoid the used car market, where prices have risen the most.

Take the time to shop around for the best deal.

“There's still a lot of value out there,” said Jacqui Kearns, director of brand and strategy at Affinity Federal Credit Union in New Jersey, adding that while rates are rising, they remain historically low.

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People with credit card debt can also contact their lenders to see if they can work out a deal.

“I always recommend that people call their lender and see if they can lower their interest rate,” Anastasio said.

It may also make sense to consolidate credit card debt into something with a fixed interest rate, since this type of debt is the most sensitive to rate hikes and tends to have the highest interest rates.

Right now, the average interest rate on a new credit card is nearly 20%, according to LendingTree.

It's also a good idea, if possible, to pay off the entire debt.

Kearns recommends addressing those cards that have relatively low balances.

“If you have that persistent $200 or $300 debt, pay it off,” he added.

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Prepare for the future

Paying off debt is just one way to set yourself up for future financial success, something that's especially important as people weigh the risk of a recession.

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"It's a very delicate dance that the Fed is performing," Anastasio said, adding that while the central bank will do everything it can to curb inflation without slowing down the economy too much, there are many factors that are out of its control, such as uncertainty stemming from the war in Ukraine.

Financial experts recommend taking some time now to

review your spending and savings

to strike a solid balance.

“Be smart about spending the money you have

,” Kearns said.

This may mean cutting back on discretionary purchases or budgeting more for items that have gone up in price.

Citizens should also make sure they have solid emergency savings to offset rising prices.

According to Anastasio, when people plan their future expenses, like an upcoming vacation, they may want to budget more than usual.

“The reality is that we may see a decline in rapidly rising costs, but that doesn't necessarily mean that when you go to the grocery store to buy baby formula, suddenly the manufacturer is going to charge the same price again. than two years ago," he said. 

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Get help

There is no doubt that raising interest rates has some advantages.

Over time, savers may start to see better rates on savings accounts, Schaeffer said.

Investors also have opportunities to benefit from market volatility, Kearns said.

"It's a great time to invest if you have the appetite for it," Kearns said.

“Literally just a few dollars a day in the volatility we're seeing can garner a lot of value if you stay long term,” he added.

Those who are having difficulty managing their money or feeling stressed by the current environment may want to seek the help of a professional to improve their budget or future planning.

"It's the right time to take a hard look at your goals, your risk tolerance, and your financial plan,"

says Schaeffer, adding that this is especially important for those in transition periods, such as approaching retirement or preparing for retirement. send a child to college.

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“Have a plan and work with someone to put that plan in place,” Kearns said, adding that there are plenty of resources spanning price points from digital tools, platforms to in-person advisors.

This article is part of the 

Invest in You: Ready series.



 (Invest in you: Ready. Ready. Grow), an initiative of CNBC and Acorns, the micro-investing app.

NBC Universal and Comcast Ventures are investors in 



Source: telemundo

All news articles on 2022-06-09

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