What the Fed’s Rate Hike Means to Your Credit Card

What the Fed’s Rate Hike Means to Your Credit Card

December 14, 2016         Written By Bill Hardekopf

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Today, the Federal Reserve voted unanimously to raise the federal funds rate by a quarter percentage point. This was just the second rate hike in nearly a decade.

Revolving loans with variable interest rates will incur a corresponding increase of 0.25%.

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Since almost 90% of credit cards in America have variable rates, this means a rate hike for nearly every credit card will take place in the next few weeks. In general terms, consumers will be paying about $25 in the next year for every $1,000 in credit card debt.

There are several things consumers can do to minimize their credit card interest payments in 2017:

* Stop using your card until you no longer carry a balance on your account from one month to the next. The new charges you put on your credit card just adds to the balance and increases the difficulty in paying off the debt. Put the card away and use cash or a debit card for your purchases until the debt is completely paid.

* Pay off the debt as quickly as possible. Pay as much as you possibly can toward the balance each month. The average credit card interest rate is currently 14.75% so that is the financial penalty you are paying each month. There are very few investments that are paying 14.75%, so if you have any extra money, use that to pay down the credit card balance.

* Make micropayments throughout the month. Many people falsely believe they can only make a credit card payment on their due date. You can actually make smaller payments, online or by mail, throughout the month which lowers your average daily balance. This, in turn, will lower your monthly interest charges.

* Consider transferring the balance to a lower interest rate card. There are a number of cards that have very attractive promotional offers on balance transfers. The Citi Simplicity card currently offer 21 months of 0% interest on the amount that is transferred as long as the transfer takes place within the first four months of being a cardholder. But there is a 5% balance transfer fee on the amount transferred. Do the math to see if this is a wise financial move for your particular situation. In many cases, this can save a significant amount of money on interest payments.

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* Contact your credit card issuer to see if you can obtain a lower interest rate on your card. There are no guarantees this will be granted, but it does not hurt to ask, especially if you have been a solid customer. Explain you have offers from other competitors with lower rates but that you’d like to stay with your current issuer if you can lower the interest rate. If you are turned down by the first person, politely ask to speak to their supervisor and explain your situation again. Any lowering of the APR can be very beneficial to your financial health.


The information contained within this article was accurate as of December 14, 2016. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
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