With the Federal Reserve continuing to raise interest rates to fight inflation, it can feel intimidating to navigate interest rates, loans and mortgages these days. The Fed raised rates for the 10th consecutive time following their meeting on May 3rd. However, the modest .25% hike suggests policymakers might be moving in a new direction for 2023. According to Bankrate, the costs of buying a car, mortgaging a house or using your credit card aren’t expected to increase as much as they did in 2022, but they are still expected to rise.

Here are three things you can do to put yourself in the best financial position while navigating a challenging credit market. 

Manage Your Debt

In times of uncertainty, deciding whether to pay off credit card debt or save any extra cash for your emergency fund can be challenging. If you feel your job is secure and you already have savings, consider paying down high-interest debt. This is especially important for credit cards with a variable interest rate, meaning the interest rate fluctuates over time depending on how the Federal Reserve adjusts the federal funds rate. If you don’t have the extra money to pay down debt, prioritize making minimum payments, reevaluate your budget and cut back on unnecessary expenses such as subscriptions you hardly use or impulse purchases. Cash stuffing, for example, is a great budgeting hack for spending money more mindfully. With this technique, you set aside a specific amount of cash each week designated for rent or groceries. According to an MIT Study, paying with cash versus your credit card creates a higher feeling of shopper’s remorse, improving your chances of sticking to a budget.

Navigating Interest Rates

Mortgage interest rates are still caught between high inflation and the Federal Reserve’s attempt to restrain soaring prices. While the housing market is complex, there can be benefits to buying in a high-interest rate environment. For one, it reduces the number of active buyers, translating to less competition. As a result, homes may stay on the market longer and qualified buyers can take time to consider their choices vs. feeling pressured to offer over asking price or waive contingencies, like foregoing a home inspection, to compete. Whether you’re buying in a competitive market or in one that allows you to take your time, make sure you weigh your options and consult a professional to better understand potential financial implications. 

Consider Refinancing When Rates Go Down  

If you took out a mortgage at a higher interest rate, keep an eye out for refinance rates in case they start to decline. Depending on your current rate, refinancing can allow you to change the terms of your loan or mortgage to secure a lower monthly payment. Additionally, an improved credit score can help you secure a better rate. Your credit score is indicative of how well you manage debt. Typically, lenders want to see a credit score of 620 or higher to consider refinancing your loan or mortgage. If your credit score is low, there are ways you can improve it before attempting to refinance your loan. Consider only utilizing 30% or less of your credit capacity, limiting your requests for new lines of credit or consolidating your current debts. More information about how to build and improve your credit can be found at efirstbankblog.com.

Shop lenders

According to a study by Freddie Mac, buyers who shop around for multiple mortgage rate quotes can save an average of $3,000. Different lenders may offer different rates, so it pays to compare offers. Keep in mind the best deals might not be from the lender you’re working with, so it’s worth checking with other banks, credit unions and mortgage lenders that provide local financing. When evaluating your options, keep an eye on current rates to know when it might be time to either refinance an existing loan or finance a new loan. While refinancing may lessen your monthly payments, keep in mind that you might see additional costs that generally come to about 2% – 6% of the new mortgage.

Making big financial decisions when credit rates are high can be stressful, but there are ways to minimize risks. For questions about your financial wellness, don’t hesitate to check out efirstbankblog.com for tools and resources to help you make an informed decision. 

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