What The Fed Interest Rate Hike Means for Your Credit Card Debt

Posted on August 16, 2022 in Credit Cards

If you’re wondering how Fed interest rate hikes will affect credit cards, experts say the increase will result in higher APRs and longer debt payoff periods for cardholders.

The Federal Reserve raised interest rates by 0.75 percentage point in July, bringing the benchmark rate to a range of 2.25%-2.5%. Despite slowing inflation, Fed officials say more rate hikes are still needed. This means that credit card interest rates will continue to rise, and debt repayment may take longer due to higher monthly payments. For example, when credit card APRs rise, the interest rate you pay rises, costing you more money because it takes longer to pay down the principal balance. If you have credit card debt, now is the time to take action to pay it off or get help.

Here’s more on how the fed interest rate hike will affect credit cards, and what strategic action you can take to save money and pay off your debt.

World Events, Inflation & More Are Influencing Rate Hikes

Inflation, variations in supply & demand, and the Ukraine-Russia war seem like vague and distant problems for some. The truth of the matter is all of these issues are leading to higher interest rates intending to curb inflation.

Because of this, the fed decided to raise its target federal funds rate range on Wednesday. The old rate of 1.5-1.75% jumped to 2.25-2.5%, making it the fourth increase since March of this year. Anytime the fed makes a rate hike, it will directly affect your credit card debt.

Higher interest rates impact everyday people, causing the A.P.R. to fluctuate on your credit card bill. Rising interest rates will affect you as soon as the next 1 or 2 billing statements.

We’re going to explore how these raises in the federal fund rate will impact your credit card debt. We will also explain how paying down your credit card debt now will help you in the long run. We’ll also take a look at what options are available to you for debt relief.

It’s ok if you don’t understand how you got under the credit card debt mountain you find yourself. We’re going to make sure you understand how to solve your credit card debt problem and how to prevent it from ruining your life. To start, let’s see how the recent fed rate hikes directly affect your credit card statement.

How Do Interest Rates Affect Your Credit Card A.P.R.?

Debt Increases, Payoffs Take Longer

The U.S. central bank sets the federal fund rate. This rate does not apply to the average consumer. This is the interest rate that banks use when they borrow and lend to each other at the end of the business day.

This rate directly impacts the prime rate (that’s what the P in your credit card’s A.P.R. stands for). The prime rate is used primarily for consumer financing.
It goes without saying that this increase won’t affect people who pay their balances every month.

Greg McBride, a Bankrate.com chief financial analyst said “With the Federal Reserve raising interest rates at an unprecedented pace, variable rate debts such as credit cards and home equity lines of credit will be the biggest exposure.”

For the rest of us, the total amount of money we are going to owe just increased. And because our credit card debt increased, it will now take us longer to re-pay. This is especially true if you are only able to pay your minimum monthly payment.

How Do Rising Interest Rates Directly Impact You?

Your Credit Card Bill Will Be Higher

According to Ted Rossman, senior industry analyst at CreditCards.com, these increased rates will begin to hit just about everyone with a credit card balance in the next 1-2 months.

Although this isn’t a dramatic raise, it certainly isn’t going to be the last of the year. The fed will continue to use this rate adjustment tool until they see obvious proof of an inflation slowdown to prevent a recession. This will reflect in almost immediate increases on your credit card statement.

Prices Are Soaring Already

Inflation is hitting us hard. Consumers today are still trying to grapple with rising costs for food, fuel, rents, and more. These are little luxuries the average person is having trouble with. So, when some have difficulty meeting their monthly expenses, they are counteracting the increases with returns to credit card overuse. Jan-March of 2022 has already seen credit card balances reach over $841 Billion.

Purchasing necessities now with credit cards slams the consumer with the increased shock of high prices followed by even higher interest rates.

Why Is It Important To Pay Down Your Existing Credit Card Debt?

Interest Rates Will Continue Rising

Interest rates for credit cards are already spiraling upward. The higher they go, the harder it gets for you to repay your debt. Experts are predicting that today’s average A.P.R. of 17.13% could reach an all-time high of 19% by the end of 2022.

The writing on the wall is giving us a warning and an incentive to get motivated to pay down our debt.

How Much Can You Save on Your Credit Card Debt?

To show how much you can save by paying down debt before more rate increases, let’s look at a debt scenario.

If you had a $5,525 balance on one of your credit cards with a 16% variable A.P.R. and made 3% minimum payments every month, it would take you over 15 years to finish paying it off. You would have paid $4,186 in interest alone, for a total of $9,711.65. Now factor in the 0.75% fed hike and you’ve now had to repay $10,074.83.

Suppose you’re fortunate enough to have a balance transfer card available to you with a 21mo. introductory period and a 3% transfer fee. You possess a promising tool to pay down your debt before more increases come down the pike.

If you were able to pay as much as you could before the introductory period ended, you could pay $270.99 monthly for 21 months and a $165.75 fee. That would be $5,690.79 paid in full. What a difference that could make!

You Have Debt Relief Options

These credit card facts and predictions can be overwhelming if you don’t know what action to take, or where to turn for help.

TurboDebt is among the best debt relief companies who offer several debt relief options to help you take control of your finances with a debt-free life as the end goal. Let’s learn about the 5 main tools to lift your credit card debt.

Debt Relief Options to Help Combat Rising Federal Interest Rate Hikes

Debt Settlement

With a 5 star rating based on almost 2,000 review, TurboDebt is ranked number one on Trustpilot in the debt relief service category. This top company will negotiate with your creditors to drop down the total you owe in exchange to pay a piece of the balance in a lump payment. If you are unable to make a big payment like that many creditors will honor monthly payments instead.

Debt Settlement gives you the benefit of reducing a portion of your debt with some creditors by as much as half! The debt may still appear on your credit reports for up to 7 years, and the IRS considers forgiven debt through negotiations as taxable income.

Still, if you are able to make regular payments and your debts are recent and in collections, this may be a good option for you.

Related: Is debt settlement worth it?

Debt Consolidation

If you have a large debt spread across several credit cards while maintaining a high credit score, debt consolidation may give you the most relief.

You either acquire a personal loan or a balance transfer credit card to put all of the credit card debt into a single loan with a much lower interest rate.

Usually, you will have to pay back the loan over a longer period of time and there may be additional fees that apply. Reviewing with a counselor will help you figure out the total cost and if this is an option you should pursue.

Debt Forgiveness

Qualifying for debt forgiveness can feel like you just won the lottery. Debts are forgiven by lenders for serious injuries and illnesses, financial hardships, or other life-altering events. The federal government has a loan forgiveness program you can apply for as well.

The main point to remember about debt forgiveness is to GO DIRECTLY TO THE LENDER TO NEGOTIATE! There are just as many scammers and schemes associated with debt forgiveness as there are dollars of debt. Go directly to your lender’s website or the government’s website. Never use an online search as the majority of these are fraudulent.

Bankruptcy

Bankruptcy is the last resort debt relief option for those who have sky-high debt and no possibility to repay through a payment plan.

Chapter 7 Bankruptcy protects your retirement and savings from creditors. The downside is bankruptcy remains on your credit history for 7-10 years. You will also need to hire an attorney qualified in bankruptcy law.

If your credit is already shot and you have no way to pay back an astronomical sum, bankruptcy may be the right answer.

Take Action Today Based on How the Fed’s Rate Hike Will Affect Your Credit Card Debt

Interest rates are sure to rise again this year, according to the experts. This increase, along with inflation is only going to add to the burden of paying off credit card debt – meaning paying off credit card debt will cost more and take longer. If you find yourself frantic, and unable to pay down your debt on your own, contact TurboDebt to craft a custom plan that includes less debt and more freedom.

You won’t find judgment or lofty lectures. Instead, what you will find at TurboDebt is a skilled staff who will custom tailor a debt solution to set you back on the path or possibilities.

Our goal is to help you take control of your finances and lay down a manageable game plan toward a debt-free life.

Don’t let the federal interest rate hike affect your ability to pay off credit card debt. Get a free savings estimate and start paying off your credit card debt today!

Related blog posts

Need expert financial advice?

Let TurboFinance connect you with the best consulting services and resources to help you take control of your finances and find a path to build wealth.

TAKE CONTROL OF YOUR DEBT