DAVE & DUJANOVIC

How will the expected interest rate rise ding your wallet?

Mar 14, 2022, 5:07 PM | Updated: Mar 17, 2022, 10:25 am
Inflation is rising, partially due to rising gas prices....
Higher gas prices are contributing to rising inflation rates. AP Photo/Nam Y. Huh, File.

SALT LAKE CITY — Inflation is on the rise fueled in part by the rising cost of gasoline. In reaction to prices rising, interest rates are likely going up, starting this week. But consumers can take action now to ease the sting of inflation, says a national financial expert.

The consumer price index for February rose 7.9% from a year ago, the highest level since January 1982. In the West Region, which includes Utah, the CPI is up 8.1 % from a year ago, according to the US Bureau of Labor Statistics

Greg McBride, Bankrate’s chief financial analyst, explained how this could impact consumers. He joined KSL NewsRadio’s Dave Noriega and Debbie Dujanovic to go over what to expect.

The Federal Reserve is expected to start raising interest rates Wednesday. 

Here’s a breakdown of how the Fed’s expected rate hike will impact your wallet.

Why do interest rates rise?

“The idea behind raising interest rates is to slow, pump the brakes on the economy a little bit, temper demand somewhat, and eventually bring down inflation,” McBride said.

Raising interest rates can cool an economy overheated by consumer demand, but the building rise in inflation is due to the global supply chain linked to increases in labor and transportation costs but also commodity prices, driven higher by the Russian invasion of Ukraine.

“Interest rates, I think, will help bring inflation down a little bit, but it’s not going to be a panacea, and it’s also not going to happen overnight. This is likely the beginning of a campaign of raising interest rates over the course of the next year or two,” McBride said.

Should I transfer my credit card balance?

The campaign of rising interest rates is a cumulative effect, he cautioned. It’s $6 more on the car loan this month and $15 more on the mortgage payment.

“But if the Fed raises interest rates, six, eight, 10 times, that’s where that the cumulative effect can really jump up and then a year from now, you find yourself in a little bit of a financial distress because your budget has been further squeezed by these higher debt payments. That’s a situation you want to avoid,” McBride said.

He suggested transferring your balance from a higher interest-rate credit card to a zero-interest rate credit card or refinancing out of a variable rate and locking in a fixed rate.

“Don’t those zero interest credit card rates, don’t they typically have some fees or some transfer fees associated with them as well?” Dave asked.

“They do — 3% to 5% of the balance being transferred is the typical balance-transfer fee. Now that’s one that can pay off nicely if you’re moving money from a 16% credit card to one with 0%,” McBride said.

But if you do transfer your high-interest debt to a zero-rate card, have the discipline to pay down your debt and stop using the higher-rate credit card because the situation you don’t want to be in is: fast forward 18 or 21 months, and guess what? You still have that debt on that 0% card at the point where that’s going to expire and the rate will go way up.

“You want to put yourself in a position to get that debt paid off once and for all. And that 0% rate can be very effective at that, but that’s really only the first step of a two-step process. The second step is up to you,” he said.

 

Dave & Dujanovic can be heard weekdays from 9 a.m. to noon. on KSL NewsRadio. Users can find the show on the KSL NewsRadio website and app, as well as Apple Podcasts and Google Play.  

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How will the expected interest rate rise ding your wallet?