Debt can be challenging to manage, even in the best of times. With the economy in the news nearly every day, how do you effectively manage your debt as the cost of borrowing things like homes, cars, and credit cards rises?
Here are five general 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 percent of Americans checked their credit score in the past year. Regularly monitoring your credit can alert you to errors, protect you from fraud, and provide valuable information to strengthen your credit score – potentially minimizing the rising cost of borrowing.
What’s your debt portfolio?
Another helpful course of action is to make a list of your current debt, such as credit cards, car loans, student loans, and other debts. Although it’s a simple step, this can make a big difference in visualizing the big picture of your financial situation. Understanding where you stand is part of seeing the impact of rising interest rates.
What are your current interest rates?
An effective next step is regularly reviewing your balances, terms, and interest rates monthly. By staying on top of this vital information, you can make more aggressive adjustments and informed decisions about reducing any existing balances. As a debt pay-down strategy, starting with the highest-interest credit cards or loans often makes sense.
What is a realistic payment plan?
As you can, consider paying credit card balances in full by the due date each month. You can avoid interest charges on what you purchase, which means rising interest rates may not affect your household finances.
What is your overall financial plan?
To stay financially healthy and minimize the impact of rising interest rates, it is key to earn more than you spend so that you have enough money to build savings for the future. Keeping an eye on your spending is important in creating a budget without the cost of high-interest debt. Once you develop a household budget and track income and expenditure, it becomes clear where the money is going and where you need to adjust your spending to achieve your financial goals. By setting financial goals, preparing a financial plan, sticking to a budget, and setting up an emergency fund for the unexpected, you ensure that your financial well-being does not suffer as interest rates rise.
Connect with resources
There may be times when you need additional help to manage everything going on financially – especially as the cost of borrowing becomes more expensive.
Our partners at GreenPath Financial Wellness provide guidance to help you understand your credit history and debt management advice.