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How the Fed’s interest rate hike affects you

Consumers with credit-card debt will feel the Fed’s interest-rate hike pretty quickly, according to experts.
Consumers with credit-card debt will feel the Fed’s interest-rate hike pretty quickly, according to experts. AP

On Wednesday, the Federal Reserve boosted interest rates by a quarter percentage point – and signaled that more hikes are coming this year.

The move, which brings the short-term rate to a range of 0.75 percent to 1 percent, will impact your wallet in different ways. Here’s a look at what it means to different consumers:

Credit-card holders

What it means to you: Consumers with debt “will feel it pretty quickly” – as soon as the next credit-card cycle for some, according to Greg McBride, chief financial analyst at Bankrate.com.

What you can do: Transfer balances to cards with zero- or low-percent interest rates. Some promotional offers are for a year or more. “You can use that as your window of opportunity to get the debt paid off once and for all,” McBride said.

“The other thing you have to do is go on offense. Aggressively pay down debt. If that means taking a second job, driving Uber, do what you have to do to get that debt paid off, because it’s only going to get more expensive.”

Savers

What it means to you: A rate hike may benefit people on fixed incomes, who prefer savings accounts, money markets and CDs over the volatility of the stock market, said Jud Gee, managing partner of Charlotte-based JHG Financial Advisors.

Still, it’ll take time to see significant yields on these accounts, McBride said. He said consumers’ best bet is to shop around for banks paying the highest returns.

On a savings account, for example, the top yields are at 1.25 percent, versus the average account, which is paying 0.1 percent, McBride said. “So you can easily add one percentage point” by looking online for comparisons.

What you can do: Gee said savers should look at alternatives that may help them get the most out of their money, such as options within the fixed-income market that may provide periodic payments and have a better chance of withstanding rising inflation and interest rates.

Mortgage holders and seekers

What it means to you: Holders of adjustable-rate mortgages could pay hundreds a month in extra costs, according to McBride. That’s because Wednesday’s rate hike is the Fed’s third one since December 2015, he said. The Fed has signaled two more hikes this year.

“If you have an adjustable rate mortgage (and) a reset in the next year or two, you do have to pay attention,” McBride said. “Because the cumulative effect can be pretty significant and can mean big payment increases.”

What you can do: Future mortgage-seekers shouldn’t worry about quick, big climbs in mortgage rates, which are less influenced by the Fed and more influenced by a rise in inflation and faster economic growth.

“The more important things are making sure your credit is in good shape, that you paid down debt and have comfortable breathing room in your monthly budget,” McBride said. “Mortgage rates aren’t going to run away in the interim.”

But don’t wait it out if you’re unsure about that strategy, Gee said. “If you foresee potential interest rates going up, you should probably lock in a rate” now.

Small-business owners seeking loans

What it means to you: You’ll pay more to borrow money, but there’s a strong reason for you to feel positive about it, according to Mike Ernandes, spokesman for the U.S. Small Business Administration’s Charlotte office.

Rate hikes point to a healthy economy, which is good for business.

“They’ll be more optimistic, really,” Ernandes said. “Although these small business owners may pay more for financing, continued consumer confidence and spending furthers a healthy economic expansion.”

Small businesses also will see an increase in credit card rates.

“This is a consideration to not take lightly and should be calculated into the overall business plan,” said Briles Johnson, executive director of the Raleigh-based Women's Business Center of North Carolina. “Small businesses need to be sure they understand these variables and build into the plan, and not be surprised.”

What you can do: “Plan and be prepared,” Johnson said by email. Stay on top of the lending market, and watch trends with non-traditional lenders. “Businesses can also look to putting some of their money into higher interest accounts such a money market and savings.”

The Associated Press contributed.

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