It appears our long stretch of historically low interest rates may be about to go up. And while you might think that news only affects the home buying world, you might be surprised at how it could affect your credit card debt!
The Federal Reserve has signaled its confidence in the strength of the economy with the first of three planned interest rate hikes for 2017. The Fed has held the line on low rates since the economic crisis of 2007 in order to stimulate borrowing, but now that the recovery has taken hold, it has signaled that rates will be rising to normal levels.
If you’re like many Americans, you have a fair amount of credit card debt. This new move means you will likely see a hike in your interest rate. It's important to check your statements each month for any materials from your credit card issuer regarding changes in rates. Usually, it takes around 60 days for a rate hike to be reflected in higher credit card interest.
Personal finance advisors say this is a good time to step up your payments and reduce your debt as much as you can. By focusing larger payments on your highest-rate credit card (and possibly putting it away in a drawer), you can save money over the long term.
The best advice is to pay more than your minimum balance each month in order to avoid the long-term treadmill of compound interest. You can also transfer balances from high-rate cards to a card with a zero-interest introductory rate. Then pay down the debt before the offer expires and the rate returns to normal.
And if you have a problem with high credit card debt and a poor credit rating, the Federal Trade Commission offers materials and advice that can help. For more information, see https://www.consumer.ftc.gov.