How Fed Rate Cut Will Affect Credit Cards
The Fed cut the federal funds rate by three-quarters of a percent on Tuesday. This key interest rate has now declined six times in exactly six months. The rate is now 2.25%, a decline of 3% since September 18, 2007.
What impact will the Fed's move have on credit card customers?
"Anytime we see a cut by the Fed, it should help credit card customers that have a variable rate card," said Bill Hardekopf, CEO of LowCards.com. "Over half the credit cards in the marketplace have variable rates, so those customers could eventually see another slight decrease in their bill. But we do mean a 'slight' decline."
Interest rates have dropped due to these Fed cuts by 3.0 points since September. If you have a $5,000 credit card balance, a 3.0 point drop will now save you about $150 per year, or $12.50 per month.
"We have seen some major credit cards finally lower their rates," said Hardekopf. Here are a few examples of credit cards with lower rates:
* The rates for Blue from American Express dropped from 12.24% in September 2007, to 10.99% in March.
* The rates for Citi Platinum Select dropped from 10.24% in September 2007, to 7.99% in March.
* The rates for Chase Freedom dropped from 14.24% in September 2007, increased to 17.24% in January, then dropped to 15.99% in March.
"While this is good news for many households, unfortunately, some consumers may not experience a significant drop in rates," says Hardekopf. "While the lower rates are advertised in their terms and conditions, they also say that they can increase your rate at any time for any reason.
"It is imperative for credit card consumers to maintain their credit scores and pay their credit card bills on time or this could give the issuers a reason to increase the interest rates. Banks are in a difficult cycle right now, and are using credit card rates and fees to generate as much revenue as possible."
This is a good time to look at the terms and conditions of your credit card.
"Some credit cards have floor rates. This limits the interest rate to a certain minimum amount. Check your terms and conditions to see if your card has this floor rate. If it does, call the issuer and try to negotiate a different rate. If that doesn't work, shop around for a credit card with a better rate.
"If you have a variable interest rate, a good credit score and a good payment history, many cards should have dropped your rate by at least two
points in the last six months. If your rate is above 15% for a general
purchase card, call your issuer and ask for a lower rate."
Take advantage of lower rates to pay down your debt. After you get a lower rate, do not reduce the amount you pay per month. Pay as much as you can over your minimum balance and you will pay off your credit card debt much faster. If you choose to just pay the minimum balance each month, it could take two decades to pay off your credit card debt.
"Even if your rate is lower now, don't assume that it will be that way forever, or even in the next year," says Hardekopf. "Pay attention to those notices you receive from your credit card issuer. Some are now telling you that they are increasing your rates and you can basically take it, or leave it. You can close the account, but continue to pay off the balance at the old rate. If you don't accept the rate increase, it is up to to you to let them know."
What impact will the Fed's move have on credit card customers?
"Anytime we see a cut by the Fed, it should help credit card customers that have a variable rate card," said Bill Hardekopf, CEO of LowCards.com. "Over half the credit cards in the marketplace have variable rates, so those customers could eventually see another slight decrease in their bill. But we do mean a 'slight' decline."
Interest rates have dropped due to these Fed cuts by 3.0 points since September. If you have a $5,000 credit card balance, a 3.0 point drop will now save you about $150 per year, or $12.50 per month.
"We have seen some major credit cards finally lower their rates," said Hardekopf. Here are a few examples of credit cards with lower rates:
* The rates for Blue from American Express dropped from 12.24% in September 2007, to 10.99% in March.
* The rates for Citi Platinum Select dropped from 10.24% in September 2007, to 7.99% in March.
* The rates for Chase Freedom dropped from 14.24% in September 2007, increased to 17.24% in January, then dropped to 15.99% in March.
"While this is good news for many households, unfortunately, some consumers may not experience a significant drop in rates," says Hardekopf. "While the lower rates are advertised in their terms and conditions, they also say that they can increase your rate at any time for any reason.
"It is imperative for credit card consumers to maintain their credit scores and pay their credit card bills on time or this could give the issuers a reason to increase the interest rates. Banks are in a difficult cycle right now, and are using credit card rates and fees to generate as much revenue as possible."
This is a good time to look at the terms and conditions of your credit card.
"Some credit cards have floor rates. This limits the interest rate to a certain minimum amount. Check your terms and conditions to see if your card has this floor rate. If it does, call the issuer and try to negotiate a different rate. If that doesn't work, shop around for a credit card with a better rate.
"If you have a variable interest rate, a good credit score and a good payment history, many cards should have dropped your rate by at least two
points in the last six months. If your rate is above 15% for a general
purchase card, call your issuer and ask for a lower rate."
Take advantage of lower rates to pay down your debt. After you get a lower rate, do not reduce the amount you pay per month. Pay as much as you can over your minimum balance and you will pay off your credit card debt much faster. If you choose to just pay the minimum balance each month, it could take two decades to pay off your credit card debt.
"Even if your rate is lower now, don't assume that it will be that way forever, or even in the next year," says Hardekopf. "Pay attention to those notices you receive from your credit card issuer. Some are now telling you that they are increasing your rates and you can basically take it, or leave it. You can close the account, but continue to pay off the balance at the old rate. If you don't accept the rate increase, it is up to to you to let them know."
Posted by Lynn at
2:48 PM
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