For those trying to keep tabs on their bank balances, December has brought a flurry of changes.
Earlier in the month, the Federal Reserve raised the funds rate by 25 basis points, its fifth increase since December 2015, which impacts some of the terms by which you borrow money and access credit.
And, of course, there's the more recent passage of the tax bill, which will have an effect on what you pay and hopefully get back from Uncle Sam.
If you are trying to catch up — and ultimately get ahead — Greg McBride, chief financial analyst at Bankrate.com, offers these tips on how to handle rising interest rates and the coming tax changes:
In the near term, higher interest rates will have an immediate effect on consumers with credit card debt, home equity lines of credit and those carrying adjustable rate mortgages.
Because most credit cards have a variable rate directly tied to the Fed's benchmark rate, that quarter-point increase will show up as soon as the next billing cycle, McBride said.
"By the time that statement comes in January — Happy New Year — your interest rate is now higher." To hit back, "be aggressive about transferring that debt to a zero-percent offer," he said, and pay down your high-interest debt once and for all.
"The best defense is a good offense," McBride said.
If you have an adjustable-rate mortgage, consider refinancing. "With fixed rates still near the 4 percent mark, there's no sense in holding on to an adjustable rate," he said.
The same goes for homeowners with adjustable-rate home equity lines of credit, which are pegged to the prime rate. Unlike an adjustable-rate mortgage, these often reset immediately. They also generally can be converted into a fixed-rate loan. (Under the new tax legislation, you can no longer write off the interest paid on a home-equity loan or line of credit.)
In the longer term, the tax changes will have a big effect on your finances.
Most notably, the new legislation almost doubles the standard deduction. That and the disappearance of several key itemized deductions mean that fewer taxpayers likely will itemize. (About 49 million taxpayers, or 28 percent, currently itemize their expenses, according to the Urban-Brookings Tax Policy Center.)
To get ahead of that, he said, consider accelerating your charitable donations to capture the current tax benefit or use a donor-advised fund, which lets you make a charitable contribution and receive an immediate tax break but then distribute the funds over time. (While the deduction for charitable contributions is unchanged in the tax overhaul, you'll still need to itemize to claim it, and that's a much higher bar with the higher standard deduction.)
Similarly, prepay your property taxes for 2018 to take advantage of the deduction while you still can, since the new bill limits the deductibility of property taxes and state and local income taxes to a combined $10,000. Check with your local property tax collector's office to see what your municipality will allow.
And finally, McBride suggests deferring any income you can until 2018, when your tax bracket will likely be lower, particularly if you have commission-based earnings or are self-employed. The same goes for small business owners.
Across the board, each person must determine what moves will work best for their own financial circumstance.
"Everybody's situation is different. Therefore it's always wise to discuss your individual situation with a CPA before making these moves," said Jill Fopiano, CEO of O'Brien Wealth Partners in Boston.
"The time you spend strategizing pays dividends," said McBride. "Sitting down with your tax advisor is money well spent."
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