Will Another Rate Cut Help Consumers?
Consumers are finally seeing lower rates and slightly lower payments as a result of last month's Federal Reserve rate cut, and another cut may soon follow.
Tomorrow the Federal Reserve is expected to make its second rate cut in six weeks. Wall Street predicts the cut will be .25%. The Fed decreased rates by .50% on September 18.
The first cut was big news because it was the first since 2003, and twice as big as some analysts had predicted. However, it did not lead to a substantial savings for consumers with credit card debt. The rate cuts are small and only affect cardholders with variable rates. According to a Federal Reserve survey, approximately 57% of credit cards have variable rates.
"The first cut saved cardholders about $2 per month on a $5,000 credit card balance," says Bill Hardekopf, CEO of LowCards.com. "Add this possible cut and the total savings from both will be around $3 per month.
"The Fed is making very small reductions in the interest rates of what some cardholders pay. Meanwhile, issuers continue to find ways to increase rates and fees. During this period that the Fed cut rates, Discover has raised its rates twice on cash advances from 20.99% in early September to 23.99% on Nov. 1. Another example of increased fees is Bank of America removing the cap for balance transfer fees.
"Consumers need to realize that despite the desire of the Fed to cut rates and relieve credit issues for consumers, issuers also clearly state in the terms and conditions that they can increase your interest rate at any time, for any reason.
"Even though rates may be reduced by small increments, the best way to get a lower rate is to talk with your credit card company. If you carry a balance, they will often lower the rate because they want to keep your debt and interest payments," says Hardekopf.
In order to actually receive a meaningful decrease in their interest rates, credit card consumers will have to ask for it themselves.
When should you ask for a lower rate?
* If you have a good payment history and your APR is over 12%. The average APR is around 14.9%.
* If you received a high rate for your first credit card, have paid on-time, and stayed under your credit limit for 6-12 months.
* If your card started out with a low rate, but your issuer has increased it several times.
* If you have had the same card for several years and your balance is under 30% of your credit limit.
Requesting a lower rate is pretty simple, even if you don't like negotiating and this seems out of your comfort zone. Call the number on the back of your credit card or bill. Tell them you have been a good customer but you would like a lower rate. Mention that you have received several offers with lower rates in the mail and have
researched cards with lower rates online. You want a lower rate on your card or you will switch to another card with a lower rate. Ask what can they do to help you.
If the first person tells you that they can't lower it, call back in a month. This is one area where persistence may pay off. If they tell you they can't lower your rate, remind them that there are other cards available.
If your interest rate is lowered by 4 points (from 18 to 14%), in the first year you will save $200 on a $5,000 balance. Apply this savings to pay down your balance.
Tomorrow the Federal Reserve is expected to make its second rate cut in six weeks. Wall Street predicts the cut will be .25%. The Fed decreased rates by .50% on September 18.
The first cut was big news because it was the first since 2003, and twice as big as some analysts had predicted. However, it did not lead to a substantial savings for consumers with credit card debt. The rate cuts are small and only affect cardholders with variable rates. According to a Federal Reserve survey, approximately 57% of credit cards have variable rates.
"The first cut saved cardholders about $2 per month on a $5,000 credit card balance," says Bill Hardekopf, CEO of LowCards.com. "Add this possible cut and the total savings from both will be around $3 per month.
"The Fed is making very small reductions in the interest rates of what some cardholders pay. Meanwhile, issuers continue to find ways to increase rates and fees. During this period that the Fed cut rates, Discover has raised its rates twice on cash advances from 20.99% in early September to 23.99% on Nov. 1. Another example of increased fees is Bank of America removing the cap for balance transfer fees.
"Consumers need to realize that despite the desire of the Fed to cut rates and relieve credit issues for consumers, issuers also clearly state in the terms and conditions that they can increase your interest rate at any time, for any reason.
"Even though rates may be reduced by small increments, the best way to get a lower rate is to talk with your credit card company. If you carry a balance, they will often lower the rate because they want to keep your debt and interest payments," says Hardekopf.
In order to actually receive a meaningful decrease in their interest rates, credit card consumers will have to ask for it themselves.
When should you ask for a lower rate?
* If you have a good payment history and your APR is over 12%. The average APR is around 14.9%.
* If you received a high rate for your first credit card, have paid on-time, and stayed under your credit limit for 6-12 months.
* If your card started out with a low rate, but your issuer has increased it several times.
* If you have had the same card for several years and your balance is under 30% of your credit limit.
Requesting a lower rate is pretty simple, even if you don't like negotiating and this seems out of your comfort zone. Call the number on the back of your credit card or bill. Tell them you have been a good customer but you would like a lower rate. Mention that you have received several offers with lower rates in the mail and have
researched cards with lower rates online. You want a lower rate on your card or you will switch to another card with a lower rate. Ask what can they do to help you.
If the first person tells you that they can't lower it, call back in a month. This is one area where persistence may pay off. If they tell you they can't lower your rate, remind them that there are other cards available.
If your interest rate is lowered by 4 points (from 18 to 14%), in the first year you will save $200 on a $5,000 balance. Apply this savings to pay down your balance.
Posted by Lynn at
5:20 PM
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