How Rising Interest Rates Are Affecting Finances

How Rising Interest Rates Are Affecting Finances

By Thomas Hunt, a guest contributor to Your First Million

In recent months, a rising interest rate has made news as a sign of a recovering economy.  While it may seem like good news overall, it may not make much sense to most people.  What exactly does a rising interest mean? And how will it impact your personal finances?

In December 2016, the Federal Reserve (commonly called the Fed) raised its benchmark interest rate by .25 percent.  This month, the Fed raised the rate again by .25 percent.  Two more interest rate hikes are projected for 2017.

So what does this mean for the average American?  For many, rising interest rates could spell financial trouble for those with variable interest rate loans such as mortgages, student loans and personal loans.  It can also have a significant impact on anyone who carries a credit card balance.  Read on to learn more about what rising interest rates mean for you.

Credit Cards

Credit cards have variable annual percentage rates, or APRs.  When the Fed raised the interest rate in December 2016 and again in March 2017, credit card interest rates increased as well.  For consumers carrying credit card debt, this could result in a big financial hit. 

Even a small interest rate increase translates to a higher monthly minimum payment, and potentially hundreds of dollars each year in interest payments.  Having a higher APR will make it harder for most Americans to pay off their credit card debt and even to make their monthly minimum payments.


As the Fed increased interest rates in March, mortgage interest rates rose to 4.3 percent.  Over the coming months, mortgage interest rates are expected to continue to rise to as high as 5.5 percent by the end of 2018.  This is bad news for anyone with an adjustment rate mortgage, as they could see their monthly payment rise significantly. Anyone with a fixed rate mortgage will be less likely to refinance given the higher interest rates.  It could also be challenging for anyone looking to buy a house in 2017 or later, as borrowing money will be increasingly expensive.

Personal Loans

As interest rates rise on all types of debt, interest rates on personal loans have increased as well.  Anyone with a variable interest rate personal loan will likely see a change in their monthly payment amount.  For borrowers looking to take out a new personal loan, they will likely see higher interest rates than in previous years.

Student Loans

The interest rate increase will impact anyone with a variable interest rate loan, who can expect that their monthly payments will go up.  In addition, new borrowers may find that their interest rates are higher.  Current borrowers may want to hold off on refinancing student loans, as it will be difficult to obtain a lower interest rate. 

Auto Loans

As with other types of loans, interest rates on car loans are projected to climb as well.   Any borrowers with variable interest rate car loans will likely see an increase in their monthly payments.  New car purchasers will find car loans more expensive to borrow money.

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