With stocks back in a bull market and inflation cooled, the Fed is expected to pause on raising interest rates. But remember, borrowing costs remain high after a year of Fed rate increases made it more expensive to borrow money to buy a home or a car.

More recently, banks have started to tighten lending standards—especially for those with less than stellar credit, financial advisers said. This makes it harder to get approved for car loans, mortgages and other lines of credit.

The borrowers most likely to be affected are those with borderline credit scores, said Spencer Betts, certified financial planner in Bickling Financial Services in Lexington, Mass.

“If you have good credit, good cash flow, good [debt-to-income ratio], you won’t be affected,” he said. “Riskier loans are going to get even more expensive, so there will be some pullback on the riskier side.”

The average annual percentage rate on a new-car loan for those with scores 780 and above is 5.18%, according to NerdWallet. The average APR on a new-car loan for those with scores between 601 and 660, however, is 8.86%.

More broadly, while there are many encouraging economic signs, it is still unclear how the Fed will proceed in the months ahead and too soon to make major changes, said Michael Weber, associate professor of finance at the University of Chicago.

People might see mortgage rates increase and make a judgment as to their own house-hunting plans, but few should base household finance decisions on interest rates alone, he said. There are many factors to consider across your investing portfolio.

Move cash into higher-yield accounts

As you consider longer-term financial plans, it is important to make sure your cash is earning as much interest as possible, Betts said.

After years in which savers had little incentive to move their savings, high-yield accounts from banks such as Ally and Goldman Sachs Group offer 4% and 4.15%, respectively.

“The money you’ve set aside for your down payment is finally earning something,” he said.

Those who have yet to take advantage of these higher rates are missing out on gains, Betts said. He encourages clients to take a closer look at the money they are keeping in checking accounts and consider what they would lose by moving it to one of these higher-yield options.

“Right now, you are getting paid to have money in cash, as long as you are proactive about that,” he said.

Take this time to reassess your financial plan

The expected Fed skip allows American households a chance to take a longer view of their financial plans.

“When we’re making a big financial decision, we need to take more than just the rate into perspective,” said Sara Kalsman, certified financial planner at Betterment.

Those hoping to buy a home might want to take a slower approach if they are put off by today’s mortgage rates. The average rate on a 30-year fixed-rate mortgage dipped to 6.71% last week, according to Freddie Mac. If that still seems too high, focus on saving more toward a down payment, which will lower monthly payments and give rates more time to drop.

Consumers can also benefit from taking another look at their scheduled debt payments, Kalsman said. Carrying debt in a higher-rate environment means you are likely paying more in interest over the life of a loan. Those with spare cash on hand might be able to chip away at that credit-card balance, Kalsman said, and ultimately pay off the debt more quickly.

“When you’re looking at excess cash flow and considering whether to pay down debt or invest, if your rate is substantial, it could make sense to pay down that debt at a higher pace,” she said.

Is now a good time to invest?

Some investors might be anxious to move extra cash reserves back into the market, but Kalsman cautions people to begin with goals, not investing ideas.

First ask yourself if you can allot more money to your portfolio that you won’t need to access in the immediate future, Kalsman said. And that is advice Kalsman said she offers clients regardless of market conditions.

“I always want to bring it back to a plan and whether the individual is able to achieve their goals, regardless of whether we’re in a bull market or a bear market,” she said.


By Julia Carpenter

The Wall Street Journal

Write to Julia Carpenter at julia.carpenter@wsj.com

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