What Rate Cut Means to Credit Card Consumers
Today the Federal Reserve has made the third rate cut in four months, dropping the federal funds rate by 3/4%. This is intended to be a stimulus to help banks, consumers and the economy.
This cut could benefit credit cardholders in two ways:
1. The short-term effect is a lower interest rate and lower payment. If your balance is $5,000, then this will save you $3.13 per month. Add in the previous two rate cuts and the Federal Reserve has saved you about $6 per month. "This is not a tremendous savings, but it will help. It will be more meaningful if you apply that savings to pay down your minimum balance," says Bill Hardekopf, CEO of LowCards.com.
2. The long-term effect could be more beneficial for consumers. The Federal Reserve is lowering the rates they charge banks, in hopes that this will encourage the banks to pass lower rates along to consumers. They also hope this will encourage banks to expand their loans to consumers. In recent months, banks have tightened their loan approvals, including credit cards and home equity loans, in response to the subprime credit crisis.
"There is an interesting dance playing out here. Banks have just been burned by years of easy credit and making bad loans. In response, they tightened the loans process, making it more difficult to get credit, and now the Federal Reserve
is dropping interest rates to encourage additional lending. It will be interesting to see if we can find a perfect balance between lenders and creditors.
"This cut may enable issuers to approve more credit card applications. Due to the economic climate over the past six months, they have tightened the approval process and it has been harder for consumers to get approved for a credit card. Now, this may help more applicants get approved.
"While the credit industry still seems to be trying to get back on its feet, cardholders must protect themselves. Take this time to contact their own issuers and ask for lower interest rates. Pay your bill on time and to get your minimum balance to under 30% of your credit limit," says Hardekopf.
This cut could benefit credit cardholders in two ways:
1. The short-term effect is a lower interest rate and lower payment. If your balance is $5,000, then this will save you $3.13 per month. Add in the previous two rate cuts and the Federal Reserve has saved you about $6 per month. "This is not a tremendous savings, but it will help. It will be more meaningful if you apply that savings to pay down your minimum balance," says Bill Hardekopf, CEO of LowCards.com.
2. The long-term effect could be more beneficial for consumers. The Federal Reserve is lowering the rates they charge banks, in hopes that this will encourage the banks to pass lower rates along to consumers. They also hope this will encourage banks to expand their loans to consumers. In recent months, banks have tightened their loan approvals, including credit cards and home equity loans, in response to the subprime credit crisis.
"There is an interesting dance playing out here. Banks have just been burned by years of easy credit and making bad loans. In response, they tightened the loans process, making it more difficult to get credit, and now the Federal Reserve
is dropping interest rates to encourage additional lending. It will be interesting to see if we can find a perfect balance between lenders and creditors.
"This cut may enable issuers to approve more credit card applications. Due to the economic climate over the past six months, they have tightened the approval process and it has been harder for consumers to get approved for a credit card. Now, this may help more applicants get approved.
"While the credit industry still seems to be trying to get back on its feet, cardholders must protect themselves. Take this time to contact their own issuers and ask for lower interest rates. Pay your bill on time and to get your minimum balance to under 30% of your credit limit," says Hardekopf.
Posted by Lynn at
6:50 AM
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