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How rising interest rates affect your day to day

Transcript

The fed raised interest rates again this week by 3/4 of a percent, and mortgage rates have seen their biggest jump in 40 years. Borrowing on credit cards, and car loans is also going up.

LEILA FADEL, HOST:

It's getting much more expensive to buy a house, a car or really anything on credit these days because interest rates are through the roof.

STEVE INSKEEP, HOST:

And the Federal Reserve this week raised interest rates yet again by three-quarters of a percentage point.

FADEL: NPR's Chris Arnold joins us now to talk about what this means for all of us. Hi, Chris.

CHRIS ARNOLD, BYLINE: Hey, Leila.

FADEL: OK. So the Fed just raised rates again. What's the real-world impact going to be for most people?

ARNOLD: Well, like you said, I mean, when the Fed raises rates, that affects many kinds of borrowing. And we should say not all. You know, if you've got a car loan that's on a fixed rate two years ago, that doesn't change. But other forms of debt with adjustable rates like a home equity line of credit or credit card debt - that's been getting more expensive. It just went a notch higher again. And taking out new debt, of course, like a new mortgage - mortgages have seen their biggest jump in 40 years over the course of this year. So that's gotten much more expensive.

FADEL: OK, so what's the best way for people to handle all this? What should they do when they're facing this big increase in the cost of borrowing?

ARNOLD: I talked to a personal finance expert at NerdWallet about this, and her name is Sara Rathner. And here's what she recommends.

SARA RATHNER: What's really important for each individual is assessing the debt you have and how much that debt is costing you and making a plan to get out of that debt as quickly as you can, especially if it's high-interest debt.

ARNOLD: So, again, if you already have a fixed-rate mortgage - say you got it a couple of years ago, it's at 3% - you're fine. Don't worry. But if you have a bunch of money on credit cards - that is always a bad idea, by the way.

FADEL: Yeah.

ARNOLD: You might have been paying 16 or 20% even before all this happened, you know, but now it's even higher. Now it's even more bad. But you can kind of turn lemons into lemonade if you use this as motivation to pay off that debt. Here's Rathner again.

RATHNER: If you have existing credit card debt, make a plan to pay it down as aggressively as your budget allows. And some months you might have more money to throw at it than others. I would also say if you have credit card debt, stop using your credit cards.

ARNOLD: And that's because if you pay for everything in cash, it's a lot harder to spend more money than you actually have.

FADEL: Good advice always. So I guess a bad time to take on new debt.

ARNOLD: Absolutely, especially large amounts of money. You do not want to be borrowing large amounts of money like buying a house - also a terrible time to buy a car. Used cars even are really expensive. Car loans are expensive. I talked to T.R. Brooks, who lives near Boise, Idaho. And he and his wife really want a newer car. They've got this 20-year-old Honda Civic that's got a few problems.

TR BROOKS: How much time do you have? There's a spot on the engine block that's been welded so that it doesn't explode. There's rust in about five or six different spots. The paint's coming off. Maybe the most annoying thing is the sun visor just doesn't stay up anymore, so it's always, like, hovering threateningly right at eye level.

ARNOLD: He's got to duct tape that visor. But even with it, they're going to hold off, not sell the car and just drive it further into the ground because it's just too expensive to buy a newer one right now.

FADEL: OK, Chris, I can't let you go until you give us something, some kind of silver lining to hold on to.

ARNOLD: Sure. I mean, just quickly, if you're able to save and invest for the long haul, now is actually a good time. Stocks are down 20%. They're cheaper than a year ago. Bonds are giving really better returns than they have in years if you buy them now. So start a retirement account if you don't have one.

FADEL: NPR's Chris Arnold, thank you.

ARNOLD: Thanks, Leila.