Smart Borrowing in an Era of Higher Interest Rates

There are strategies you can use to lower the cost of new and outstanding debts.

- KIMBERLY LANKFORD

TO combat inflation, in March 2022 the Federal Reserve launched a campaign to raise interest rates. Since then, the Fed has pushed up its benchmark federal funds rate nearly a dozen times, from near 0% to a recent target range of 5.25% to 5.50%. That has been a boon to savers, but borrowers are feeling the strain. Debt that may have seemed manageable suddenly takes up a larger part of their monthly budget. And people are thinking twice before taking out new loans for a house or car.

“It was cheap to overconsume,” says Mari Adam, a certified financial planner in Boca Raton, Fla. “That era is over.” The Kiplinger Letter forecasts that the Federal Reserve has finished raising short-term interest rates for now but is unlikely to cut rates until the second half of 2024. And due to lingering concerns about inflation, interest rates are unlikely to return anytime soon to the super-low levels many borrowers became accustomed to before the Fed started hiking rates.

But, Adam says, now is also the ideal time to take steps to get your debt under control. There are still opportunities to reduce the rates on your debts, but given the likelihood that rates will remain elevated, they may not last for long.