As interest rates rise, it becomes more tempting to save money and pay down debt. But if you’re a homeowner, student or credit card borrower, this means your payments will be higher. This is because all these things are tied to the Federal Reserve’s benchmark rate. And although the Fed’s latest move was a small one, it signals that they aren’t stopping soon.
The Fed is trying to combat rising inflation and prices by raising their benchmark interest rate, which then leads lenders and creditors to raise theirs as well. This makes it more expensive for consumers to take out loans, like mortgages or credit cards, which then causes them to spend less, slowing inflation and the economy.
Pashun Starling, a mom of two in Bedford, Texas, knows the impact of an interest rate hike firsthand. She’s been extra careful with her budget since prices began climbing and has had to be even more selective on where she spends her hard-earned dollars.
WalletHub’s data shows that homeowners will pay an additional $5.1 billion in interest this year due to a 1.5% interest rate hike, while students with credit cards will see their monthly payments climb by an average of $23.
But it’s important to remember that the effects of an interest rate hike aren’t just centered on the American economy. These changes can reverberate globally, as they make it more difficult for developing countries to access credit and invest in their economies.