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Tips on How To Handle Interest-Rate Hikes and High Inflation Part 2

a woman choosing which credit card to use
Jacqui Kearns, Chief Brand, Strategy, and Wellbeing Officer AffinityFCU
By: Jacqui Kearns
Chief Brand, Strategy, and Wellbeing Officer

Date: May 13, 2022

In part one of this blog series, Affinity offered key strategies for savers dealing with interest-rate hikes and high inflation. In this second installment, we provide targeted advice for borrowers amid the current challenging economic environment.

If you intend to borrow, you’ve probably noticed it’s a little more expensive these days. That’s monetary policy at work — rising rates slow economic activity. Here are some strategies to consider for different types of loans:

  • Mortgages: If you’ve had a fixed-rate mortgage for more than a couple of years, congratulations — your rate is probably lower than current options. If you’re contemplating financing a home purchase with a home loan, things may be a little more complicated when rates are on the move (up or down). We all want the lowest possible mortgage rate, but it’s impossible to time the market. Find the home you can afford based on current rates, and don’t focus on market movements after you’ve locked in your rate. You also need to consider factors such as fixed or variable rates. To navigate the many nuances of buying a home, reach out1 to a qualified mortgage lender.
  • Home equity lines of credit (HELOCs): If you have equity in your home, a HELOC2 may be a good option to get out of higher-cost debt (like credit cards). Your line is based on the equity available in your home, and is there when you need it. You can opt to only pay interest when you draw on the line. HELOCs usually have a variable interest rate, which is subject to change in accordance with the prime rate (offered to the most creditworthy members). When shopping for a HELOC, look for the best rate and no fees.
  • Car loans: You’ve probably noticed there aren’t many “zero-interest” financing offers out there anymore. That’s because of rising rates. If you’re buying a car in 2022, the best option is to do your homework in advance. Get pre-approved by your credit union or bank before you head to the dealership. Sometimes, car dealers get paid for referring your loan to a lender, so finding you the best rates may not always be their highest priority. A lesser-known fact is that you can usually purchase guaranteed asset protection (GAP) insurance at a much lower cost from your lender than from a car dealer. GAP keeps you from being stuck with a bill if your car gets totaled and your insurance recovery is less than what you owe the lender. It’s a wise choice if you finance with a small down payment. If you have a pre-approved offer in hand and a fair price for GAP, you may do much better when discussing payment terms with the car dealer’s finance manager. Affinity offers GAP protection3 and other auto-financing solutions4 that complement our competitive auto loans.5
  • Credit cards: It’s getting more expensive to carry balances since credit cards are typically tied to short-term interest rates, which have been increasing recently. Your interest rates may rise even more in 2022. If you can’t pay off your balances but have equity in your home, you can use a home equity loan to possibly lower the high-interest credit card rates. If you don’t have access to a home equity loan, look for6 low-rate credit card balance-transfer offers, but watch out for high transfer fees and interest rates after promotional periods expire. It’s very important to choose your credit card wisely, and to bring up any questions you might have with a professional at your credit union or bank.

If the current economic landscape is putting significant stress on you and your family, it’s good to keep in mind that rising rates can generally be positive. With economic activity increasing and the labor market continuing to strengthen, there will be light at the end of the tunnel. It’s important to remain resilient as we have for the past couple of years, and to implement a plan that helps you save. By acting on the tips provided in parts 1 and 2 of our blog series, you can stay on a path to financial wellness in 2022, even as interest rates continue to rise and inflation increases.

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments.

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