It's getting more expensive to borrow money, with rates on mortgages, car loans and credit cards heading higher. Here's where you're likely to feel the impact and what you can do about it.



The Federal Reserve is starting to raise interest rates, and that means it is getting more expensive to borrow money in all kinds of ways - mortgages, car loans, credit cards. NPR's Chris Arnold reports on where we're likely to feel this the most.

CHRIS ARNOLD, BYLINE: When you're buying something as pricey as a house, interest rates matter a lot, and they've already jumped up pretty sharply.

ZACK GEBRAN: It starts to push it from, like, we could maybe make it work to the point where you're just like, it's not worth it.

ARNOLD: Zack Gebran (ph) lives in Fort Collins, Colo. He's 33 years old, and he and his partner are ready to buy a place and settle down. But in this frenzied housing market, that's already been really tough. And now mortgage rates have risen more than a full percentage point since just this last summer. On a $450,000 loan, that pushes the mortgage payment up by $325 a month.

GEBRAN: I have tens of thousands of dollars in savings, and it feels like it's nothing. It doesn't matter. And now that the Fed's raising the interest rates, that just closes that door even more.

ARNOLD: All this sounds pretty bad, but there are some upsides to rising interest rates. The return on super safe investments like bank CDs - those should be going up a bit. And, actually, with the housing market, higher rates could finally stop the runaway train of rising home prices. Selma Hepp is an economist at CoreLogic.

SELMA HEPP: Higher mortgage rates may be helpful in cooling the housing market, you know, and that may help us bring us back more to some level of normality. And in that case, we won't see so much bidding over the asking price.

ARNOLD: Don't expect home prices to come down. Hepp says home prices in the U.S. rose by nearly 20% last year. But this year they're expected to rise by much less, more like 3%. A few years like that could give builders time to catch up with demand and build more homes. Another good thing, too, for people who already own a home...

HEPP: Currently, about 90% of loans are fixed-rate loans.

ARNOLD: So they're protected against rising interest rates. Together, though, U.S. homeowners owe around $300 billion on home equity lines of credit. With those, you borrow against the value of your house. Almost all of those have variable rates - and if the Federal Reserve is planning to keep raising interest rates to combat inflation all year. Kate Wood follows home loans for NerdWallet.

KATE WOOD: A home equity line of credit - these are really, really, really closely tied to the kinds of moves that the Federal Reserve is making. Your rate is going to go up.

ARNOLD: But Wood says the Fed has only just started to nudge rates higher, so you still actually have some time to look at your options. Some banks will let you take the money that you owe on a line of credit and lock that into a fixed interest rate.

WOOD: It's worth reaching out proactively to your lender about that because, you know, think about it. This is something that is potentially saving you money. Your lender is maybe not sending you mailers and calling you up to let you know about this great option. So it's a good idea to actually get them on the phone.

ARNOLD: Rates are also likely to go up for all kinds of other types of consumer debt - a new loan to buy a car, credit cards, installment loans. So if you have, say, credit card debt, now is a good time to try to get out from under it.

MIGUEL GOMEZ: If you feel trapped, credit counseling can really make a difference.

ARNOLD: Miguel Gomez is a certified financial planner in El Paso, Texas. He says the National Foundation for Credit Counseling is a good nonprofit that he's seen help clients to get out of debt. And he says there's this age-old technique.

GOMEZ: Take your credit cards. Put them in a Ziploc bag. Put them in a Tupperware. Fill the Tupperware with water, put it in the freezer and forget about them.

ARNOLD: That way, if you really need a credit card, you still have them, but it definitely cuts down on the impulse purchases. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.