Predicting if and when the Federal Reserve will raise interest rates is a fool’s game, though plenty of people try doing it.

The recent inaction by the Fed to hold interest rates where they are may prolong global uncertainty, though it’s a global uncertainty that has been around since the last time the Fed raised interest rates in 2006. Its main interest rate has remained practically zero since then.

The Washington Post reported that some Fed officials expect interest rates to be raised sometime this year — which leaves only four months. Its top officials are scheduled to meet twice more in 2015: October and December.

3 ways to beat the Fed

If interest rates do rise this year, there are some financial habits worth starting now in preparation for the rise. Here are three:

Repay student loans

This may be difficult for college students, many of whom have student loans, but limiting debt and paying loans before graduation will help avoid inflated balances and reduce monthly payments after graduation, according to Scott Smith, president of Seattle-based CreditRepair.com.

Early repayment will free up income for post-grad purposes. It will also reduce a borrower’s credit utilization ratio, an important factor in keeping a credit score as high as possible.

Higher credit scores will help qualify you for lower interest rate loans, which will ultimately offset any future interest rate hikes by the Fed, Smith says.

Don’t carry credit card balances

Credit cards can help build a credit score if used properly. If you’re carrying a monthly balance, it could hurt your credit score, as could making late payments.

An interest rate hike will ultimately cause credit card rates to increase, affecting people with large credit card debt.

When applying for a credit card, consider annual fees, your ability to repay and all service charges, Smith recommends.

Practicing discipline with a credit card is important, as is paying all of your bills on time. By doing this, an interest rate hike will have very little effect on credit card users.

Savings accounts finally win

The best part about the Fed raising interest rates is that savings account will finally see a rate hike in interest rates.

Saving is difficult, so starting the habit of saving now before interest rates rise will make it a lot easier when you’re earning more money on your savings.

This article by Aaron Crowe first appeared on CashSmarter.com and was distributed by the Personal Finance Syndication Network.

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3 Financial Habits to Start Before Fed Raises Interest Rates is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.

Who wants to buy one car for the price of two? All you have to do is get a loan for six years at a 12% interest rate, and pay it off as scheduled. Gross, isn’t it?

Actually it’s compound interest. It’s bullish if you’re getting it, but a real beast if you’re the one paying it. Most people know about the magic of compounding investments, but it works the other way too. And just as some rates are better for investments than others, debts should also be avoided with certain interest rates, unless you enjoy doubling your debt.

Time isn’t the only factor, but it’s the biggest. The Rule of 72 is Einstein’s simple shortcut to figure out how long it takes for an interest-compounded value to double. It’s not exact, but it’s never more than half a year off. Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double.

So 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double. 20% takes 3.6 years to double, and 36% doubles in just two years. So if your loan duration is long, as in home loans, keep in mind it takes even less time for it to re-double (or quadruple). And it’s usually redoubling about half a year quicker for most good-credit rates.

As in the example above, if you’re buying a car with a loan (which is typically never more than six years), you want to stay under 12% interest to avoid paying double. And 12% is a magic number too, being the first to quadruple in almost two years less time than it took to originally double. Therefore, as soon as your interest rate is 12% or higher, your debt is growing at the fastest rate possible.

Bad credit isn’t entirely hopeless though. If you find yourself stuck in a position where you cannot get a good rate, you should then shop around for a loan that welcomes early payment. It’s more than avoiding early-payment penalties though. The loan should also get recalculated every time you make a payment on the date you made the payment regardless of due dates.

In other words, you can avoid doubling your debt if you can pay more often. Obviously paying more than your obligation helps too, but you can effectively cut up to 10 points off your rate just by dividing your monthly obligation into at least bi-weekly, if not weekly, payments. So if you have a $400 monthly obligation, paying $100 every week cuts back on the interest accrual, saving thousands over the course of the loan.

However, that only works if your loan doesn’t have a static monthly payment term. Talk to the underwriter or loan advisor about the terms of your loan. They will be able to tell you whether it is amortized on payment or on a specific date regardless of when you paid.

By the way, if you can’t get a used car loan under 12%, you should buy new. Legally, new car loans can’t exceed 8%, and you can still get an early-payment loan on that too.

Visit TheDollarStretcher.com today for 10 things you need to know about compound interest and what you need to know before you shop for an auto loan.

This article by Patricia Mayo first appeared on The Dollar Stretcher and was distributed by the Personal Finance Syndication Network.

Source

The Rule of 72 is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.