Categories LATEST

Beware credit-card holders, Fed rate hikes are coming

The Federal Reserve is expected to spike interest rate today by about 0.25 percentage points to 1.75%. While this is good news for people who have invested heavily in savings accounts (largely, baby boomers), for an average borrower it means more work hours per week. Borrowing expenses, be it for a loan or a mortgage, will rise following this move — as will credit card debts.

Debts on credit cards are calculated via variable interest rate, meaning they increase or decrease based on Fed actions.

In simpler terms, once the rate is increased, banks will have to pay more to borrow from the Fed, and they just transfer that financial burden to their customers. But yeah, that’s how banks work!

A credit card
Image courtesy: Petr Kratochvil, publicdomainpictures.net

Since December 2015, the Federal Reserve has increased interest rates five times to 1.5%. This has, in turn, cost credit card customers an extra $6.8 billion in interest, according to data from WalletHub.

The Federal Reserve has now hinted at three rate hikes this year, means borrowing is going to be a lot tougher. The average credit card charge, which currently stands at around 16.4%, could increase one percentage point by next year.

The Fed hikes are inevitable, given President Donald Trump recent policies to lift economic growth. The tax cuts and jobs act, as well as the proposed import tariffs on Chinese goods, have forced the Fed to increase interest rates faster.

Since experts believe credit card interest rates will increase within a couple of billing cycles since the Fed announcement.

The effect of the anticipated Fed move is expected to have varying impact in different cities. The most vulnerable cities include Beverly Hills, where over 61% of the residents have credit cards; and Miami Beach, where the credit card population is over 55%. Darlington and Detroit are among the least vulnerable cities with credit card population of 18.4% and 25% respectively.

Since experts believe credit card interest rates will increase within a couple of billing cycles since the Fed announcement, there are two things you could do to reduce your debt burden. One would be to pay off the entire credit card balance every month, or at least minimum payment due.  You could also consider shifting to a card that offers a lower rate.

Most Popular

What to look for when CVS Health (CVS) reports Q3 earnings

Healthcare company CVS Health Corporation (NYSE: CVS) is all set to report earnings next week, with Wall Street expecting a mixed outcome. The company has been facing challenges in certain

eBay (EBAY): A few factors that helped drive growth in Q3 2024

Shares of eBay Inc. (NASDAQ: EBAY) stayed green on Friday. The stock has gained 32% year-to-date. The ecommerce leader delivered revenue and earnings growth for the third quarter of 2024,

CVX Earnings: Chevron reports lower revenue and profit for Q3 2024

Energy exploration company Chevron Corporation (NYSE: CVX) on Friday announced third-quarter 2024 financial results, reporting a decline in net profit and revenues. Net income attributable to Chevron Corporation dropped to

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top