You may not follow the financial news in your spare time, but if you're in the midst of purchasing a home or refinancing your student loans, you've probably noticed that interest rates are expected to rise.
While, yes, that could have a negative impact on your immediate financial future, you don't have to panic. As long as you're prepared, you can take action now and benefit from the continued low interest rates—because these are still low in comparison to historical rates
(As a point of comparison, when my stepdad bought his first house in the '80s, the interest rate was 16%. Yikes.)
So how do you take advantage of today's low rates before they go up?
1. Take stock of your finances
Of course, this is smart advice no matter the interest rates, but now is an especially good time to better understand what's going on with your finances. Make a list of all your debts, what the balances are, and what the interest rates are. This will help you identify what actions to take first.
For instance, if you have credit card debt, you'll want to focus on cards with high interest rates. More on that later.
2. Refinance your student loans
Have you ever talked to someone who consolidated their student loans back in the early 2000s and found yourself drooling all over their 1% interest rate? Those borrowers knew to jump on that train before the rates went up.
Now's your chance to be one of those people, or at least get a lot closer.
If you have student loans with an interest rate over 4% and you have good credit, you could likely lower your interest rate by refinancing with a private lender. The average borrower who refinances student loans saves $253 per month and more than $16,000 over the life of their loan.
But as interest rates go up, those savings will go down. Refinancing now could lock in those savings for the life of your loan.
3. Buy that house or car
Obviously, you don't want to jump into a big financial decision out of the blue. But if you've been considering a home or car purchase, you may want to move forward sooner rather than later.
Say you're able to get a $250,000 mortgage today with a 30 year fixed 4.225% interest rate. You'll pay $1225 a month for your new home.
But if you wait and interest rates go up by just one percentage point, your monthly bill will be $100 higher. Maybe that doesn't sound like much, but it will translate to $54,000 more over the life of the loan. You'll pay $495,591 for that $250,000 mortgage.
The short and sweet? You'll save money if you buy now.
4. Pay off your credit cards
Remember that credit card debt you wrote down in point #1? Now's the time to cross that off.
Pay down the cards with the highest rates first. If you're struggling to pay off a balance with a high interest rate, you can make faster progress in one of two ways:
1. Call your credit card company and ask for a lower interest rate. You may be surprised, but this method actually works a lot of the time, especially for people with a good payment history.
2. Transfer your balance to a 0% interest card. Only do this if you can be sure you'll be able to pay the balance off before the interest rate goes up (usually after a year). Some people find that cutting up the new card after transferring the balance helps keep them focused on the true purpose of the card: paying off the debt.
5. Refinance any variable loans
Variable rate loans can be a good move if you're positive that your financial situation is going to improve in the future. But there's always a risk that interest rates will increase dramatically and leave you scrambling for cash.
When you know interest rates are on the rise, refinancing variable rate loans for fixed rate loans allows you to keep the current low rates going forward. Your new fixed rate may not be as low as the starting rate on a variable rate loan, but you'll avoid the risk of a skyrocketing rate in the coming years.
Whatever your financial situation, you would probably benefit from taking at least one action while interest rates are low.
Get started by finding out how much you could save by refinancing your student loans. Your future self will thank you.