The Federal Reserve's hike on interest rates is likely going to impact everything from car loans to the housing market to credit card debt. Mark Hamrick, Washington bureau chief and senior economic analyst at Bankrate.com, gives some personal finance tips as interest rates rise on Cheddar News' Closing Bell.

Closing Bell

How to Handle Personal Finance as Interest Rates Rise

by now, you know that the Fed raised interest rates by three quarters of a percent and you may now be wondering how this will affect your life and more specifically your wallet joining us now to help break this all down is Mark Hamrick Washington Bureau chief and senior economic analyst at Bankrate dot com. Mark welcome back to the show. Always a pleasure talking to you. Can you help us understand what kind of ripple effects this interest rate hike has for millions of americans. Good to see you Hannah. Well, first of all, there's the anticipation of interest rate moves and we've been really working through that since the beginning of the year and then there's the actual move which we got from the Federal Reserve this week. So we've seen asset classes and their values really declining as we've been working through this anticipation, we see that in stocks and bonds of course crypto has had its own crash and we believe the housing market is beginning to feel that now in terms of the move itself, we look at variable lines of credit. Those include credit card rates, home equity lines of credit and of course adjustable rate mortgages. And of course, again, in the anticipation we've seen mortgage rates move up for about three and a quarter percent, the bank rate 30 year fixed average at the early part of december of last year. And we've been moving through the 5% range close to six and above at least for some products. So that's been a rather astounding rate and we believe that will serve to further cool off the previously red hot housing market? What are some personal finance tips that you would give the average american? I'm thinking things like savings, credit cards, loans, etcetera. Mm Well, first of all, if we're moving into a more precarious economic environment, people should be perhaps additionally prudent about the additional borrowing that they are willing to take on. Not only are we going to see adjustable rates moving up as we have, but of course then the economic environment may not be as supportive. We could see the unemployment rate move up. But really number one on that hit list Henna is to pay off credit card debt. We're constantly basically exhorting people to do that anyway. But the bank rate average for the best qualified credit card holders right now is about 16 to 17% and that really does move up in equal measure with each move the Fed takes. So we would see that moving up into the 17, possibly 18%. And there are some people paying the 20% range. I asked once asked Mark Cuban, what's the single most important But a personal financial advice you can give people he said pay off credit card debt. Where else are you going to get a double digit percentage return on an annualized basis by paying that debt off over time. Save more money. So we will see a more, I'll call it a generous environment with respect to savings, particularly if we get to higher levels in those benchmark interest rates. What about people who may be looking for a house mark will mortgage rates continue to go up? It will be difficult to find affordable housing like we've seen for the last few years. It's very difficult predicting the future direction of mortgage rates Hannah, but they are already substantially higher and so we've had this year over year increase, double digit percentage style of home prices rising. And so this housing affordability question becomes even more challenging. If we do see some further cooling in the housing market, it might be to the benefit of people to wait to see if those prices come down because I think we're seeing a shift now from the balance of power being possessed from home sellers now moving more to buyers. And that dynamic could gather speed this year. The other part is the macro economic environment. If the economy does weaken from here, at least as many people fear, then it's not as supportive for homebuyers over the long term. But my colleague Greg Mcbride has a saying, and that is people don't get married just because wedding dresses go on sale. And what he means by that is people are going to go about their business as it relates to their own individual life circumstances. And so it's best for people to judge on their own just what they think their own outlook is in that regard? Let's talk about cars, How do you think the Fed rate hike will affect those people that are looking for cars? They are a little more sticky in the sense that they don't move quite as much in terms of volatility as some of the other products. We're still seeing the average for most car loans right now in the 4% plus range. But that's another area where minding your credit score, trying to make sure you pay your bills on time really does pay dividends because those who are not well qualified borrowers can get into the teens and even perhaps the low 20% range on car loans. And one of the things that concerns me here is that over many years now we've obviously had this increase in car prices, both new and used one of the sources for inflation and people in order to try to afford that purchase have been extending the length of those car loans to 56, even seven years so they can be underwater if they drive the car off the lot and it loses 30% over three years. I think we may see those car prices come down as more product comes to market and of course the auto manufacturers or dealers provide incentives in the sense of lower cost financing. Again, this is an area where it really does pay to shop around for the best rate mark, I want to talk to you about what President biden told the Associated Press in an interview that a recession is quote not inevitable, do you think americans should be more optimistic? What do you think about the President's comments about this? Well I sense that what he meant to say by that was that one is not inevitable in the very near term. The reality is when it presents itself. That's the point when we know that actually a recession is inevitable through the long-term economic cycles that we have. We just had one in March and April of 2020. But the other part of that henna is that the experience of many people are having now with this miserable rate of inflation feels like a recession to them and the impacts are very similar. They can't afford to pay for the things they want and need. If we did see a recession we'd expect the jobless rate to go up and that would cause additional damage. But I don't think the question is quite as pressing right now. As many people wanted to be. We may be seeing some discounting of recession possibilities in the stock market right now. But the economic data doesn't firmly support the idea that a recession is either here or immediately imminent recession fears as you know are surging among C. E. O. S. Was more than 60% of ceo is expecting a recession in the next 12 to 18 months. That's according to conference board. How concerned should us, me and you the average american be about a possible recession and what do we do to prepare financially well to prepare? You should basically adhere to your best personal financial practices that you would during the best of times and times that aren't so good. So that means pay off debt. As we said before, try to save more money to continue to have a methodical approach toward retirement savings, even though we've been taking some hits to those accounts here recently. I would also say while the job market remains as strong as it is, the unemployment rate most recently at 3.6%,, I'll harken back on my midwestern roots and say try to make hay while the Sun Shines. We know over the past year, many people have been intent on looking for a new job. We most recently still had a near record number of 11 million jobs that were open. We'll probably see that come down. But many employers still have unfilled positions. This is still a good time to take advantage of those open positions if you're so inclined or even within your current employment because we know that wages do tend to rise more when someone takes a new job. Mark Hamrick Washington Bureau chief and senior economic analyst at Bankrate dot com have a great weekend Mark, we'll see you soon. Thank you