June 2017 Fed Rate Hike – Why Credit Card Interest Rates are About to Get More Expensive
On June 15, 2017, the Fed raised interest rates another quarter of a point. This June 2017 Fed rate hike by the Federal Reserve comes with long-term consequences for credit card holders with variable credit card interest rates. Wednesday’s rate hike is the latest hike since the Federal Reserve began raising rates again back in December of 2015. If you carry a variable interest card, here’s how this could affect you.
Cause and Effect Of June 2017 Fed Rate Hike on Credit Card Interest Rates
Banks will respond first to the rate increase by raising their prime rates. Unlike other forms of debt like fixed-rate mortgages, most credit cards these days come with a variable interest rate. CNBC reports that this means card holders stand to pay an extra $2.50 each year for every $1,000 in debt they have.
At the moment, the average interest rate on credit cards stands at about 15.07%. A person who carries a $5,000 balance on his/ her credit cards faces an extra $175 in annual interest currently.
No End In Sight on Fed Interest Rate Increases
However, the June 15, 2017, rate hike won’t be the only interest rate increase consumers will see. According to USA Today, 2017 could have another increase in the latter part of the year. The last Fed rate hike occurred March 2017.
Additionally, it is expected that 2018 will bring three more rate increases. That $175 extra in interest could bump up to over $500 extra in interest as a result of the 2018 hikes. It’s useful for card holders to remember that this additional interest on top of what they already pay.
Economic Growth and Credit Card Interest Rates
The interest rate may be rising, but the economy itself isn’t in step with it right now. Ideally, the economy grows between 3% and 4% per year. However, it remains at 2% per year. That means that while people will pay more in credit card interest, they may not have an income increase to match it. Higher credit card interest rates decrease spending power.
Steps to Counter the Effect of the June 2017 Fed Rate Hike
A hike in the interest rate means a hike in a card holder’s debt burden. If you have a card with a variable interest rate, you’ll want to act quickly to offset the effects of the June 15, 2017, rate hike. If it’s possible, pay off your credit card debt. You could use the debt snowball for that: Basically, the debt snowball method asks you to make extra money to put toward your debt. These funds can come from a part-time job or by selling off some of your property not used.
If that isn’t an option for you right now, at least try to get a credit card with a 0% interest rate that allows for a balance transfer. Eventually, your balance will go up, but you may be able to pay the balance off before it does. 0% intro credit cards is another way to save money while paying down principle on credit cards that accrue interest.
Last Thoughts on June 2017 Fed Rate Hike on Credit Cards
The Fed raised its rate on June 15, 2017, which is expected to affect credit card holders. The interest rates for these card holders could go up several hundred dollars a year. These rates increase the consumer’s debt burden. If you’re among the people who are affected by the increase, your best bet is to pay off your credit cards or at least get a card with balance transfer options.