Money Fix: Pay debt now before interest rates rise

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The low interest rate show won't last forever. Look for the Fat Lady to start singing sooner than you might think.

The Fed finishes its tapering program by year-end and is set to raise rates next year. In June, the monthly average for a 30-year fixed mortgage was 4.2 percent, according to However, the days of 3- to 4-percent mortgages could soon be a distant memory.

"You won't see a spike, but a gradual rise the middle of next year," says Timothy Kim, an analyst with Francis Financial in Manhattan.

Here's what this means:

Credit card costs creep up. Higher rates mean higher monthly payments on outstanding card balances. Minimum payments will likely go up. "If you're living on a tight budget, adjust spending," explains Rakesh Gupta, business professor at Adelphi University in Garden City.

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Credit scores could suffer. If your monthly minimum payment gets too high, you could start missing payments, clobbering your credit score, says Matt Schulz, a senior industry analyst with

Also, when debt grows, your credit utilization ratio (debt compared to your available credit) could be damaged. This ratio is the second most important factor in credit scoring formulas.

Housing takes a hit. Variable mortgages, which move based on changes in short-term interest rates, will be more expensive, and home equity lines of credit will be less affordable.

The bottom line: Pay down or eliminate credit card debt and refinance mortgage and other loans.

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