When the Fed raises rates, it can hit you in the wallet.
The Federal Reserve raised interest rates last week and according to a new report from TransUnion, up to 92 million Americans may see their credit card bills increase next month as a result.
For most, the impact will be small – the average increase is only supposed to be $6.45 and 80% of credit users should see their bills increase by less than $10. Meanwhile, 12 million people will see their payments rise by $10-$25 and 3.7 million will have an increase between $25 and $50. On the other hand, trouble may be on the horizon for the 9.2 million who will see their payments increase by $50 or more.
“If you’re in a situation where you have half a dozen credit cards and even just a few of those bills increase by more than $50, it’s likely that it will cause stress to your budget,” explains Gary Herman, President of Consolidated Credit. “With so many Americans already living paycheck to paycheck, there’s just not enough budget flexibility to handle such a significant increase.”
The credit users most impacted by the rate increase will be people who have variable credit card rates who do not pay off their balances every month. You won’t feel any significant pinch if you are either a “super prime” credit user – i.e. your credit score is over 720 – or if your credit cards are already at the max interest rates assigned by those issuers. So it’s the credit users in the middle of the spectrum who can expect the most budget burden.
“When rates increase, the best thing you can do as a credit user is to manage your credit card debt closely so you can pay off the balances in-full every month,” Herman says. “Letting credit card debt carry over means more opportunities for interest charges to be applied. So you need to prioritize debt repayment to eliminate any revolving debt overhang you may have now.”
Herman also encourages borrowers to think carefully before opening a new balance transfer credit card account, since credit card interest rates are also on the rise.
“A 0% APR introductory offer is great if you can make a plan to pay off the debt in-full before the standard APR is applied,” Herman confirms. “However, if you transfer balances and don’t pay them off quickly, you have the potential to make a tough situation with debt even tougher.”
If you see that your situation with credit card debt is becoming more than you can handle on your own, call Consolidated Credit today at 1-888-294-3130 to speak with a certified credit counselor at no charge. You can also complete an online application to request a free analysis.