Debt can be a challenge to manage, even in the best of times. Now, the economy is in the news every day. So, how do you effectively manage your debt as the cost of borrowing for homes, cars, and credit cards rises?
Here are five questions to ask to minimize the hit to your wallet in the face of rising interest rates.
What’s your current credit score and history?
Knowing this information helps you understand how rising interest rates will apply to you. Some research shows that only 33% of Americans checked their credit score in the past year. Regularly monitoring your credit can alert you to errors and protect you from fraud. It can also provide valuable information to strengthen your credit score, which can potentially minimize the rising cost of borrowing.
What’s your debt portfolio?
Another helpful course of action is to make a list of your current debt. This includes credit cards, car loans, student loans and other debt. Although it’s a simple step, this can make a big difference in visualizing the big picture of your financial situation. Part of seeing the impact of rising interest rates is understanding exactly where you stand.
What are your current interest rates?
An effective next step is to regularly review your balances, terms, and interest rates on a monthly basis. Understanding this vital information allows you to adjust and make informed decisions about reducing any existing balances more aggressively. As a debt paydown strategy, it often makes sense to start with the highest interest credit cards or loans.
What is a realistic payment plan?
As you are able, consider paying credit card balances in full by the due date each month. Paying in full helps you avoid interest charges on your purchases. That means rising interest rates may not have much of an effect on your household finances.
What is your overall financial plan?
To stay financially healthy and minimize the impact of rising interest rates, it’s key to earn more than you spend. This ensures that you have enough money to build savings for the future. Keeping an eye on your spending is an important step in creating a budget without the cost of high-interest debt. Once you develop a household budget and track income and spending, it becomes clear where the money is going. It also sheds light on where you need to adjust your spending to achieve your financial goals. Setting goals, preparing a financial plan, sticking to a budget and starting an emergency fund is more important than ever. These financial habits help you ensure that your financial well-being doesn’t suffer as interest rates rise.
Turn to a trusted resource
There may be times when you need additional help to manage everything financially – especially as the cost of borrowing increases. Our partner, the trusted national nonprofit GreenPath Financial Wellness, provides guidance for understanding your credit history and managing debt. Contact a GreenPath counselor to address your financial concerns, develop a debt payoff plan, and build a financially solid future.
This article is shared by our partners at GreenPath Financial Wellness, a trusted national nonprofit.
