The days of rock bottom interest rates are long over.

Federal Reserve officials in November lifted their key benchmark borrowing rate to the highest level since early 2008, hiking by three-quarters of a percentage point — or 75 basis points — for the fourth time this year.

Persistently high inflation could also keep the Fed on an aggressive path, and officials are likely to back even more rate moves at upcoming meetings.

The federal funds rate hasn’t risen this much in a single year since the 1980s. And consumer borrowing costs the Fed influences are already following suit with unprecedented increases.

The average credit card rate hit 18.73 percent on Oct. 26, after eclipsing 18 percent in early September for the first time since 1996, according to national Bankrate data. The average 30-year fixed rate mortgage, meanwhile, hit 7.12 percent the same week, the highest since 2002. The same monthly payment on a $300,000 home a year ago when rates were at 3.24 percent would now only go as far as covering a $154,900 loan today, according to Bankrate’s mortgage calculator.

Meanwhile, home equity lines of credit are at the highest in 14 years, and car loans are at 11-year highs, according to Greg McBride, CFA, Bankrate chief financial analyst.

“Odds of a recession have continued to grow. The lagged effect of all these interest rate hikes, coupled with the reverse wealth effect of declining stock and bond prices, means we could see a rapidly slowing economy in 2023,” he says. Unfortunately, the economy will slow much faster than inflation so we’ll feel the pain well before we see any gain.”

The Fed’s actions have ripple effects on every aspect of your financial life, influencing how much you’re charged to borrow and how much you earn when saving. Consumers can almost immediately feel the Fed’s impact. When the Fed’s rate rises, so too do rates on credit cards, home equity lines of credit (HELOCs), auto loans and adjustable-rate mortgages (ARM), as well as yields on certificates of deposit (CDs) and savings accounts.

There’s one bright spot to paying more for money this year: More expensive borrowing costs can also hopefully reverse today’s red-hot levels of inflation that have made it more expensive for consumers to afford everything from cars, rent, gasoline and utilities to groceries, furniture and appliances. And savers are seeing the best yields since 2009 — if they shop around, McBride adds. But the downside is, the higher rates climb, the bigger the chances of a recession.

All of that underscores the importance of getting a handle over your finances, especially to ensure you’re well-positioned to tackle the one-two punch to your cost of living that is higher interest rates and soaring prices.

Here’s your 10-step plan for taking charge of your wallet as the Fed hikes rates.

1. Get a snapshot of your personal finances

Before you form a financial action plan, consumers should get an idea of where they’re at with their personal finances, including how much they have in both savings and debt.

“Plan down to the decimal point how this will impact your budget,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling. “We don’t know exactly how many rate hikes there are going to be, but the most important thing is going into this with a clear picture of where you stand financially.”

Print out statements from any account that’s housing liquid cash — or money that you could withdraw without penalty. Those are most likely savings accounts, but they could also be funds in a money market account or no-penalty CD. Even better, make a note of each account’s annual percentage yield (APY).

Next, make a list of your current debts, including your outstanding balance and the annual percentage rate (APR) you’re charged. Keep tabs on whether that debt has a fixed or variable rate and calculate how much you spend in interest each month.

Then, consider looking at your monthly budget and expenses, including how much money flows in and out of your wallet each month.

The goal of taking a hard look at your personal finances is to hopefully inform you of how fragile you might be in a rising-rate environment. You might also be able to find the debt that’s low-hanging fruit to eliminate, as well as identify budget cuts that you can make. Individuals who live outside of their means and borrow to fund their expenses will feel squeezed in a rising-rate environment.

2. Know what’s good debt and bad debt — and eliminate the latter

If you’re a homeowner with a fixed-rate mortgage, you’ll be safe when the Fed raises rates. But consumers with variable-rate and high-interest debt will want to act fast as rates climb. They’ll be the borrowers who are hit the hardest.

“Anything you can do to pay off your balances faster and make adjustments in your budget, so you don’t have to rely on your lines of credit and carry debt from month to month, that’s the best strategy” when rates are on the rise, McClary says.

High-interest debt commonly comes from a credit card. Even when the Fed’s rate held near zero, the average credit card rate hovered slightly higher than 16 percent, according to Bankrate data. If you don’t pay off your balance in full each billing cycle, that’s likely costing you hundreds, if not thousands, of extra dollars a month.

A popular method for eliminating this so-called “bad” debt is consolidating your outstanding balance with a balance-transfer card. Once you know your monthly interest costs, compare that with any fees you could be charged to refinance that debt. Then, shop around for the best offer on the market. Most cards start borrowers out with a rate as low as zero percent for a specified number of months before transitioning them to the regular APR.

Consumers would also be wise to eliminate any variable-rate debts by refinancing into a fixed rate.

“You don’t want to be a sitting duck for higher interest rates on your credit card or home equity line of credit,” Bankrate’s McBride says. “Fixed-rate debts like mortgages and car loans that are low and mid-to-single-digit rates — there’s not a whole lot of incentive to pay ahead” when inflation is higher.

That’s because the relatively low-cost debt can be a strong hedge against inflation. Simply put, you might be better off putting that money toward other avenues that meet your financial goals — such as saving or investing — than paying it off.

“The real value of that debt will decline in an inflationary environment,” says Gary Zimmerman, CEO of MaxMyInterest. “Since debt is a liability, when the value of your debt declines, you’re making money.”

3. Shop around for the most competitive borrowing rates

Shopping around will be one of the most important steps a consumer can take in a rising-rate environment.

Mortgage rates now above 7 percent signal an end to record-low refinance rates of the coronavirus pandemic-era — and even the low rates homeowners were accustomed to before then. Yet, some lenders might be more inclined to offer better deals than others to separate themselves from the competition.

The Fed doesn’t directly impact mortgage rates, which are instead pegged to the 10-year Treasury rate. Yet, the same market forces influencing the Fed often steer that benchmark yield.

Mortgage rates, however, might eventually break away from the Fed. The prospect of slower growth — or worse, a recession — could weigh on the 10-year Treasury yield, which could also ultimately lead to lower mortgage rates as well.

“If the Fed overcorrects and the economy starts to slow, then mortgage rates will come back down,” McBride says. “Be careful what you wish for because an economic slowdown — or worse, a recession — isn’t fun for anybody.”

Another avenue where noting rates might be prudent: private student loan borrowers. Doing the same kind of comparison shopping might help you score the lowest rate possible before interest rates start their ascent again.

Federal student loan borrowers, however, will want to think twice about refinancing their debt. Doing so could mean giving up on important perks, such as hardship forbearance, income-driven repayment plans and other major programs for federal student loan borrowers, including possible forgiveness of up to $20,000. Existing federal student loan borrowers almost never feel any impact from Fed rate hikes because most loans have fixed rates.

4. Work on boosting your credit score

If there’s any factor that inhibits consumers’ ability to borrow cheaply more than the Fed, it’s their personal credit scores. Most of the time, financial companies save the best rate for the so-called “safest” borrowers: those with good-to-excellent credit scores and a reliable credit profile.

Improving your credit score means more than just reducing the interest you pay on credit card debt. It could also help you save throughout all aspects of your borrowing life, including on auto loans and mortgages.

To have the best credit score possible, concentrate on making all of your debt payments on time and keeping your credit utilization ratio as low as possible — the two factors with the biggest influence on how your rating is calculated.

5. Keep up frequent communication with your credit card issuers

If your credit card rate hasn’t changed after a significant improvement to your credit score, a crucial step in your financial plan should be opening up the channels of communication with your credit card issuer. Issuers might give you a new APR, NFCC’s McClary says. If they don’t, you’ll at least know it’s time to shop around or take advantage of a balance-transfer card.

“It’s sad how few people talk to their creditors when times are good because it’s when you have those conversations, you realize a lot of really great things you could be doing to save even more money,” he says.

During an active Fed cycle, it’s also worth looking over your cardholder agreement and making sure you’re aware of how your issuer calculates your APR.

Typically, rates on variable loans change within one to two billing cycles after a Fed rate hike. Credit card companies, by law, have to give cardholders a 45-day notice if they’re going to increase their cardholder’s interest rate. Yet, any rate increase is up to the creditor, meaning it’s not outside of your issuer’s purview to hike rates faster or sooner than the Fed.

“Credit card companies do have some latitude in deciding when and how much to increase a cardholder’s interest rates within the confines and constraints of the Card Act,” McClary says. “It’s in those areas that the details are going to be in the cardholder agreement.”

6. Don’t let low yields and high inflation keep you from saving

Soaring inflation might make consumers hesitant to sit on large piles of cash, but experts say it’s more important now than ever.

A crucial part of any part of any financial plan is having cash for emergencies. Experts typically recommend storing six months’ worth of expenses in a liquid and accessible account. That balance was never meant to bring you a hefty return.

“Building a rainy day fund is really important, even if the interest rate you’re earning on those funds is lower than the inflation rate,” says Mike Schenk, deputy chief advocacy officer at the Credit Union National Association. “Put a little bit into a savings account over time, and before you know it, you’ll have a chunk of savings that can give you a better night’s sleep at the very least.”

Better yet, think about your emergency fund as the difference between having to pay for unplanned expenses with a high-interest credit card.

7. Look around for the best savings yields

Be prepared to shop around regularly for the best savings yields on the market, even if it means moving your funds to a different bank to capitalize on a better return.

Typically, online banks are able to reward their depositors with higher yields because they don’t have to pay the overhead associated with operating a brick-and-mortar financial institution.

As of Nov 1, the 12 banks ranked for Bankrate’s best high-yield savings accounts for November 2022 are offering an average yield of 2.48 percent, nearly 16 times the national average of 0.16 percent. Those banks offer yields as high as 3 percent and as low as 2.2 percent.

You shouldn’t sacrifice liquidity for yield chasing, but if an account on the market offers terms that fit your financial needs, nothing should stop you from going for it.

“Every month, a different bank is going to have the best rate,” MaxMyInterest’s Zimmerman says. “Since an FDIC-insured savings account is a commodity, it doesn’t really matter which bank. The whole idea of, ‘I’m going to pick a bank,’ That doesn’t make any sense.”

8. Start recession-proofing your finances

Saving is crucial right now because the U.S. central bank could get rates wrong: It could ultimately end up slowing down economic growth, or worse — causing a recession.

“Raising interest rates is putting the brakes on the economy,” Bankrate’s McBride says. “The harder they press the brakes, the sharper it’s going to slow down. The cumulative impact of ongoing rate hikes is where you’re likely to see a slowdown in economic activity and the labor market.”

Recessions aren’t always as severe as the coronavirus pandemic, the Great Recession or even the Great Depression almost a century ago. They do, however, mean increased joblessness, reduced hiring job security, as well as market volatility.

All of that means it’s important to start thinking about how you’d stay afloat in a recession. The same financial advice for preparing for a rate hike applies here: Live within your means, eliminate your debts and make sure you’re able to cover a period of joblessness.

9. Think about your career and income opportunities

When the cost of living rises, one of the best investments you can make is in yourself. Think about ways that you can increase your earnings opportunities over your lifetime, whether that’s by getting more training, education or increasing your skill sets. Joblessness is typically lower for those with a bachelor’s degree or higher — even during recessions, according to data from the Labor Department.

“You have to be looking down the road because what’s far more impactful to household finances than an increase in interest rates is a job loss or a significant decline in wealth,” McBride says. “Those are the types of things that happen in a recession.”

10. Tune out market volatility if you’re investing for the long term

Higher rates typically cause market dysfunction. That’s partially by design: When the Fed raises rates, it wants to tighten financial conditions, soaking up extra liquidity in the marketplace.

Case in point: The S&P 500 is down nearly 20 percent since the beginning of 2022.

Still, that shouldn’t mean anything for long-term investors, especially those that put money into the markets by way of a retirement account. If you’re investing over a time horizon that spans decades, you’ll no doubt have to endure both booms and busts.

Remember: Downdrafts in the market are a powerful buying opportunity. Investing can also help you beat inflation, though it’s something you should think about mostly after you start saving.

“Investing does make sense because you will more than likely have to take a little bit of risk to earn returns that are higher than the inflation,” CUNA’s Schenk says.

Bottom line

The ultimate goal with rate hikes is to give the economy a soft landing — slowing inflation, but not too much that it tips the economy into a recession. But for U.S. central bankers, that might be one of the most difficult jobs yet. Federal Reserve Chair Jerome Powell is also starting to admit he’d be willing to sacrifice the expansion to get inflation down.

“The crisis is easing, so it makes sense to take the policy foot off the gas to a certain extent, and maybe even to start tapping the brakes,” CUNA’s Schenk says. “It’s a very tricky balancing act. They’re basically operating on a knife’s edge.