Be Interest Rate Wise

Interest rates have become a visible issue with news items about rate changes almost every day. The Federal Open Market Committee (Fed) monitors the economy and makes changes to the key "overnight loan" rate that influences interest rates throughout the economy. By adjusting this rate, they try to keep inflation under control and stimulate the long-term economic growth.

Interest rates also play a role in our economy and in our daily lives, especially when it comes to borrowing.

Develop a Borrowing Strategy

The wise use of credit can be an important part of your personal and business financial strategies.

  • Use common sense. Never borrow what you can't repay.
  • Prioritize your borrowing based on long-term value.
  • Reserve some borrowing capacity for emergencies.
  • Consider all the terms. Borrowing can be confusing. Review all the terms and conditions before you sign any credit application.
  • Get help if you need it. If your borrowing gets out of control, take immediate steps to solve the problem. Contact lenders to work out a repayment plan. Quit using (or cut up) credit cards. Seek the help of a qualified credit counselor.

Today's Low Rates

Interest rates have fallen to record low levels. They may go lower or they may not. Accurate predictions of future interest rate movements are almost impossible. To take advantage of the current low rates, here are two ideas to consider.

Real Estate Loans

Mortgage rates are low on a historical basis, as are many home equity loan rates. Now is a great time to get a mortgage on a new home, refinance an existing mortgage or use a home equity loan to consolidate your debt with a lower rate (and potentially tax advantages). Be sure to compare your current rate with those available now. In addition, you may want to consider a different type of mortgage with a shorter term if you plan to sell your home in the relatively near future.

Credit Cards

All credit cards are not alike. Differences in fees, interest rates and associated benefits for using the card should all be considered when choosing the one that makes most sense for you. If you carry over balances and pay interest on those balances, having a card that charges lower interest can mean the difference of hundreds or thousands of dollars each year. With an average balance of $5,000, the difference between an 8 percent and 18 percent rate means $500. You owe it to yourself to compare rates and make sure you are not paying a higher rate than you have to.

This content has been provided by Practical Money Skills and is intended to serve as a general guideline.