Lower interest rates mean:
- Lower credit card interest rates
- Opportunity to refinance your mortgage
- Lower home equity lines of credit rates
- Lower personal loan rates from the bank
When interest rates are lower, it’s cheaper to borrow
Some families may use these lower interest rates to buy a new refrigerator and maybe a new stove to match it while interest rates are low!
The danger is that when interest rates begin to rise, unexpected challenges can arise, too! For example, higher interest rates cause businesses and employers to cut costs. Some of those cost reductions could cost you your job or that of your spouse! Meanwhile, you still have to make those refrigerator and stove monthly payments for maybe two years on one family salary.
Currently, according to the Federal Reserve Bank, since 2008 household debt has increased 19 consecutive quarters to 13.67 trillion dollars. Non-financial corporate debt reached 9.92 trillion dollars the first quarter of 2019. Both are the highest in history.
Be Prepared for a rise in interest rates!
As interest rates are decreased by the Federal Reserve Bank to help keep the economy growing, families need to be prepared for their eventual rise. I recommend not financing the purchase of the new refrigerator and stove just because interest rates are low, especially if the current appliances are in good working condition. Instead, save for the new appliance and pay cash, if possible.
Review Special Offers Carefully
Be careful about entering into agreements to buy appliances on an offer of ‘interest-free” for a period of time. If you are late on one payment, you will be charged not only a late fee, but you may be liable for interest on the item for the entire eighteen to twenty-four months!
A few months ago, as interest rates were falling, I thought about replacing my 2003 Maytag washer and dryer which were still working well. I went to Home Depot and spoke with a repair tech. He told me I would be better off keeping my 16 year-old Maytag appliances and replacing parts as needed. He said most new washer and dryers are not as reliable these days and don’t last as long! His estimate for a new refrigerator was a life of five years; my current Subzero fridge has been with me for 25 years!
As a general rule, if both of you are working, try to contain your total revolving monthly expenses (rent/mortgage, utilities, car and food) to the salary of one spouse and save/invest the other spouse’s income. You’ll be happy you did when that emergency knocks at your door.
Budget Budget Budget…
Of course the secret to successful family financial management is a BUDGET! If you are a single parent, the monthly budget, prepared in cooperation with your children, is an absolute necessity. If it’s not in the budget, it’s not being purchased. It’s not the fashionable attire your wear that makes people seek you out, but rather the “content of your character” that makes you their friend.
Note: Higher interest rates are good for bond investors and retirees depending on their retirement funds for income.