The cost of borrowing has been increasing, while the inflation rate has been remaining high
The Federal Reserve recently announced an increase in the rate of benchmark interest rates by 0.25% which is expected to affect the borrowing costs that consumers in most markets pay.
With the low interest rates in place for years, borrowing has become much more expensive after they’ve been raised.
The Federal Reserve has been steadily increasing interest rates to address the threat of inflation that seems to be steadily rising.
Interest rates are rising quickly, the fastest in any of our adult lives. Credit card rates are the highest since 1995, mortgage rates are the highest since 2008 and car loan rates are among the highest in years.
But a combination of higher rates and inflation has caused consumers to take the brunt. The consumer price index (CPI) has risen 8.3% over the last year
With prices on the rise and interest rates on the raise, more people are turning to credit when it may not be wise.
“At this stage, with another rate increase on the horizon, those with variable-rate debts should be prepared for their monthly payments to rise,” .He said
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Amid fears of a recession and further rate hikes, consumers should cut down on their unnecessary discretionary spending.Thomas Phillipson, an economist and former chairman of the White House Council of Economic Advisers, advises this strategy to make sure that you have enough money to fall back on in case economic conditions worsen.
“You will have to spend your money on the essentials, such as food, fuel and housing.”
A recent study suggests that turning down the opportunity to spend more money can also be used as a strategy for avoiding more credit card debt. This is because it helps save up more of your earnings which eventually lead to a better financial situation.
Experts recommend having an emergency fund saved up. Generally, having enough for three or six months is a good idea but if you happen to get in a tight spot, finding extra money is beneficial too.
“You have to be careful here,If your company doesn’t have enough cash reserves, then you’re vulnerable.”Phillipson said