Why it will soon be harder to pay off debts – FOX13 News Memphis


WATCH: How Feds Raising Interest Rates Could Impact Your Wallet WATCH: How Feds Raising Interest Rates Could Impact Your Wallet

MEMPHIS, Tenn. — From groceries to the gas pump, you’ve probably noticed that every aspect of life has become more expensive.

“I’m spending more money than I’ve ever spent,” admitted Patricia Robinson, 57, who said the price of her groceries had more than doubled in the past year.

According to the Bureau of Labor Statistics, inflation over the past year hit a 41-year high. The Fed raises interest rates to compensate for high rates of inflation.

What is the Fed?

The Fed, or Federal Reserve System, is the central bank of the United States. Part of the bank’s mission is to keep prices stable across the United States, with the goal of keeping inflation at a rate of 2%, according to the bank. As reported by FOX13, inflation hit 9.1% last year.

Raising interest rates is the Fed’s best tool to curb inflation.

Interest rates and inflation

It’s a lesson in economics: when it’s more expensive to borrow, people spend less money and take out fewer loans.

“What they’re hoping to see is that with the increase, it will slow down consumer spending as rates go up,” said LaTina Moore, founder of Moore Financial Services in Memphis. “That, in turn, they hope will help curb inflation.”

As demand falls, economists hope inflation will slow and prices stabilize.

Student loans, credit card debt, auto loan

Rising interest rates will affect everyone who borrows money in the United States.

For example, credit card interest rates will likely rise as the Fed raises rates. As The New York Times reports, the average credit card rate has gone from 16.34% in March to 16.73% today.

If you don’t have the cash for a purchase, Moore recommends putting your credit card back in your wallet. She also said that keeping your credit card balance at 10% or less will improve your credit score.

“Try to limit your debts and not spend more than you can afford,” she said.

READ MORE: What is a recession and where is the US right now?

Economists also expect the cost of auto loans to rise as the Fed raises interest rates. Students may or may not have to pay more for their loans, depending on the type. For example, federal student loan borrowers are fixed rate, so they won’t have to pay more. Private borrowers of federal student loans may soon see rates rise.

“(It) is slowing spending, but at the same time, families are struggling to make payments and meet financial obligations with the increase,” Moore said. “It makes it more expensive to be able to repay.”

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