The days of rock-bottom interest rates are long over.

Federal Reserve officials in February lifted their key benchmark borrowing cost by a quarter of a percentage point. In just 10 months, officials have hiked interest rates by 4.5 percentage points, the fastest pace since the 1980s.

Persistently high inflation is keeping the Fed on an aggressive path. Officials are likely to back a few more rate moves at upcoming meetings in 2023 and keep rates at that historically high level for some time.

The rapid rate hikes have massively lifted consumer borrowing costs. The average credit card rate has been breaking record highs since the beginning of November, most recently hitting 19.93 percent as of Jan. 25. The average 30-year fixed rate mortgage has climbed more than 2 percentage points since the Fed’s first rate hike in March 2022, according to Bankrate data.

Meanwhile, home equity lines of credit have been at the highest in 15 years, while car loans have jumped to12-year highs, according to Greg McBride, CFA, Bankrate chief financial analyst.

There’s some bright spots to paying more for money this year. For starters, more expensive borrowing costs have already helped slow 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. Savers are also seeing the best yields in more than a decade — if they shop around, McBride adds.

But higher rates, by design, also bring economic consequences, such as higher recession odds.

“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,” McBride says. “Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain.”

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

Here’s your 10-step plan for taking charge of your wallet after the Fed’s latest rate hike.

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 debt and savings they have.

Print out statements from any account housing liquid cash — or money 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, note each account’s annual percentage yield (APY).

Next, list your debt, 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 note how much interest you pay per month.

Then, keep track of the income and expenses flowing in and out of your budget 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 identify easy budget cuts or debt to eliminate. 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 every time the Fed raises rates. But consumers with variable-rate and high-interest debt should act fast. Those borrowers 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,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling.

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.

Consider consolidating your outstanding balance with a balance-transfer card to help chip away your high-cost debt. Once you know your monthly interest costs, compare that with any fees you could be charged to transfer your debt. Then, shop around for the best offer on the market. Most cards start borrowers 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 hovering above 6 percent signal an end to record-low refinance rates of the coronavirus pandemic-era — and even the lower rates homeowners were accustomed to in the decade after the financial crisis. 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, have already shown signs of breaking away from the Fed. The prospect of slower inflation — or worse, a recession — has weighed on the 10-year Treasury yield. The benchmark yield has dropped 73 basis points from its high. At the same time, mortgage rates have a similar 70 basis points from their 7.12 percent level on Oct. 26.

“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. Existing federal student loan borrowers rarely 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 helping 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

Credit score improvements might also help you save on high-cost credit card debt. Issuers might be inclined to 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 leads to another crucial step in your financial plan: opening up the channels of communication with your credit card issuer.

“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 know 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 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 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 can reward their depositors with higher yields because they don’t have to pay the overhead associated with operating a brick-and-mortar financial institution.

The banks ranked for Bankrate’s best high-yield savings accounts as of Jan. 19 were offering an average yield of 3.99 percent, more than 17 times the national average of 0.23 percent. Those banks offer yields as high as 4.35 percent and as low as 3.64 percent. Bankrate’s McBride also sees the highest-yielding offers hitting 5.25 percent by the end of the year.

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.”

Moderating inflation is also a boon to savers. With price pressures expected to sink to 3.1 percent by the end of 2023, consumers may be in the rare position where yields at the highest-yield banks eclipse the hit that inflation has brought to their purchasing power.

“With rates still rising and inflation now declining, it is the best of both worlds for savers,” McBride says. “Consider locking in longer-term CDs which are peaking now, and seek out one of the top-yielding savings accounts, which are pulling in more than 4 percent and are still rising.”

8. Start recession-proofing your finances

Saving is crucial right now because the U.S. central bank could 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: Live within your means, eliminate your debts and make sure you can cover a period of joblessness.

A Bankrate survey of economists puts the odds of a recession at some point in 2023 at 64 percent.

9. Think about your career and income opportunities

When the cost of living rises or the economic outlook seems shaky, one of the best investments you can make is in yourself. Think about ways to increase your earnings opportunities over your lifetime, whether by getting more training, education or increasing your skills. 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: Last year, the S&P 500 plunged 20 percent, the worst year for the major stock index since 2008.

Still, that shouldn’t mean anything for long-term investors, especially those who put money into the markets through 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 hard work is still ahead,” McBride says. “It has been easy – and necessary – for the Fed to raise interest rates aggressively in 2022, with interest rates starting from zero, unemployment below 4 percent and inflation at a 40-year high. It gets a lot tougher to raise rates once the economy slows, unemployment rises and inflation remains stubbornly high.”