What higher interest rates mean for you

It’s much more expensive to buy a house, a car, or really anything on credit these days because interest rates are through the roof. The Federal Reserve has been raising rates in hopes of slowing down inflation, which is surging — not just in the US, but globally. In fact, inflation hasn’t been this high since the early 1980s.

As day-to-day expenses continue to rise — with stubbornly high prices on essentials like food, gas, and housing — more people are struggling to keep up and are relying on credit cards to get by. In the US, credit card debt is rising at its fastest clip in more than 20 years. But high inflation and high interest rates are making it harder to pay down credit card debt. At roughly 19%, average credit card interest rates are at their highest in 30 years — and will probably continue rising.

All of this may sound dismal, but there is a silver lining. Yes, you’ll pay more to borrow money when interest rates are high, but you will also receive higher interest payments on your savings and bonds — making now a great time to save. Here are some tips to help you minimize the negative effects of high interest rates while maximizing your saving and investing opportunities.

Start by assessing your debt

In the US, household debt is at an all-time high, and personal savings are near an all-time low. Take inventory of the debt you have so you know how much it’s costing you and can make a plan to pay it down as quickly as possible — especially if it's high-interest debt.

Some tips to guide you:

  • Consider how rising interest rates will impact your existing debt. Rising rates only impact new borrowers and those with existing variable-rate debt, such as adjustable-rate mortgages (ARMs), home equity lines of credit, and credit card balances. If you already have a fixed-rate mortgage, a fixed-rate home equity loan, or federal student loans (most of which have fixed rates), interest rate fluctuations won’t affect your monthly payments.
  • Evaluate your financial health. Regardless of interest rates, it’s best to try to keep your debt-to-income ratio under control. Calculating your debt-to-income ratio can help you determine if you have too much debt and how to handle it.
  • Wait to take on any new debt, if possible. According to Sara Rathner, a personal finance expert at NerdWallet, now is not the time to take on new debt if you can help it. You don’t want to be borrowing large amounts of money like buying a house. With auto loan rates at an 11-year high, it’s not a good time to buy a car, either. And, she adds, if you have credit card debt, stop using your cards for now if at all possible.

Attack your credit card debt

Variable-rate, high-interest credit card debt is always risky, and right now it will cost you even more. If you’re carrying balances on your credit cards, experts recommend you:

  • Transfer your balance(s) to a 0% balance transfer card that locks in a zero rate for a period of time, like 12 or 24 months. This will insulate you from future rate hikes and give you a clear runway to pay off your debt once and for all. Just be sure to understand any fees you’ll have to pay and what the penalty will be if you miss a payment during the introductory zero-rate period. It’s best to pay off as much of your balance as possible before the zero-rate period ends — otherwise, any remaining balance will be subject to a new interest rate (that could be higher than you had before if rates continue to rise).
  • Consolidate and pay down your credit cards with a lower-interest personal loan. If you don’t transfer to a 0% balance transfer card, consider using a personal loan to consolidate and pay off your credit cards. By doing so, you can pay off your credit card debt right away and set up a payment plan to repay one personal loan. This strategy can save you money, since high-interest credit card debt typically costs you more over time than personal loan debt, which tends to have lower rates.
  • Ask your credit card company for a break on interest rates. You may be surprised how often this works. In a recent one-year period when interest rates were rising, 81% of cardholders who asked for a lower rate got it, and most got a reduction of 5-6%.

Boost your money’s earning power

The good thing about rising interest rates is that your savings may actually start earning a little money after years of barely-there interest — plus, there are timely investment opportunities for your retirement savings:

  • Shop around for the best savings rates. Earnings on online savings accounts and certificates of deposit (CDs) haven’t been this high since 2008. Some online banks and credit unions are offering far higher interest payments on your savings compared to large banks — some currently topping 3%. Top-yielding one-year CDs are now offering up to 4% or more. If you make a switch to an online bank or credit union, be sure to only choose those that are federally insured.
  • Consider short-term bonds. Bonds are also giving better returns than they have in years. During a rising interest rate environment, experts suggest investing in the shortest duration bond possible, since they are less susceptible to interest rate risk.
  • Look for bargains. The stock market usually falls as interest rates rise. When this happens, high-growth stocks, including small companies and technology stocks, tend to be the hardest hit. With stock price declines reaching 20% or more during 2022, now may be a great time to invest “on sale.” Be sure to think about your risk tolerance and goals before making investment decisions and consider consulting a financial expert.


“What to do about the highest interest rate in 15 years,” CNN (cnn.com), December 15, 2022
“Credit card balances jump 15%, highest annual leap in over 20 years, as Americans fall deeper in debt,” CNBC (cnbc.com), November 16, 2022
“Using a personal loan to pay off credit card debt,” Forbes (forbes.com), March 2, 2022
“Credit card debt surges as inflation pushes Americans to borrow more,” The Washington Post (washingtonpost.com), August 2, 2022
“How rising interest rates affect your day to day,” NPR (npr.org), November 4, 2022
“How higher interest rates may hit consumers,” MassMutual (blog.massmutual.com), September 21, 2022
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“Here’s how to pay less to your credit card company,” CNBC (cnbc.com), June 13, 2019
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