Here’s how you can prepare if there’s a 50 basis point Fed rate hike

Consumers are spending more to keep up with the surging cost of living and it may get worse before it gets better.

“Even though wage growth has been the best in decades, it’s been outpaced by increased household costs,” said Greg McBride, chief financial analyst at Bankrate.com. “With inflation at a 40-year high, that has everybody concerned.”

After the Federal Reserve raised interest rates for the first time in more than three years, Chairman Jerome Powell vowed tough action on inflation, which he said jeopardizes an otherwise strong economic recovery.

Now the expectation is that the central bank will hike rates by half a percentage point at its meeting this week.

“The Fed is behind the curve, they’ve got to catch up and they’re not going to do that with baby steps,” McBride said.

The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing.

Consumers will see their short-term borrowing rates, particularly on credit cards, among the first to jump.

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark, so your annual percentage rate will increase with each move by the Fed, usually within a billing cycle or two. 

Adjustable-rate mortgages and home equity lines of credit are also pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. 

Because 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, homeowners won’t be impacted immediately by a rate hike. However, anyone shopping for a new house is already going to pay more for their next home loan (the same goes for car buyers and student loan borrowers).

“The predicted rise already has been built into mortgage rates,” said Holden Lewis, home and mortgage expert at NerdWallet.

The average interest rate for 30-year fixed-rate mortgage rose to 5.37% last week, the highest since 2009 and is also expected to continue to move higher throughout the year.

Here are three ways to stay ahead of rising rates.

As rates rise, the best thing you can do is pay down debt before larger interest payments drag you down.

When you look across the debts that you owe, to the extent that you can, pay down the higher interest rate debt first, said Christopher Jones, the chief investment officer at Edelman Financial Engines — and “credit cards tends to be by far the highest.”

In fact, credit card rates are currently just over 16%, significantly higher than nearly every other consumer loan and may go as high as 18.5% by the end of the year — which would be an all-time record, according to Ted Rossman, a senior industry analyst at CreditCards.com.

If you’re carrying a balance,…