Guide to rising credit card interest rates

Tools, tips for cardholders with revolving debt as APRs go up, up, up

Guide to rising interest rates

With the Federal Reserve's third interest rate increase this year, credit card rates are expected to rise again, and credit card holders who carry balances can, and should, take actions to minimize the cost.

Since December 2015, the Federal Reserve has raised its benchmark rate in five .0.25 percent increments, with the most recent rate hike in December 2017.

Whenever the Federal Reserve raises interest rates, your credit card’s interest rate will almost certainly go up. For those who carry a balance, that means higher monthly minimums and higher interest charges. 

Impact on consumers
Even those small raises can hurt some consumers. The credit bureau TransUnion estimates that 92 million Americans are impacted by interest rate increases, and 9 million Americans are already stretched so thin that even a small hike will cause strain. 

Q: When the Fed raises rates, will my credit card interest rates go up?
A: It’s highly likely. Nearly all general purpose credit cards in the U.S. have variable rates, tied to the prime rate index. That, in turn, is tied to the rate the Federal Resere changes -- the federal funds rate. Your card agreement says whether your rate is variable and what index it is tied to. Note: If you are already being charged the top rate your card agreement allows, the rate will not increase.
Q: How will my interest rate be affected?
A: Changes in the federal funds rate prompt banks to adjust their prime lending rate. Most variable card APRs are linked to the prime rate as published in The Wall Street Journal. The index reflects the prime lending rates posted by seven of the 10 largest U.S. banks.
Q: How much will the Fed rate increases cost me on my credit card bill?
A: Whenever the Fed hikes rates a quarter-point, that means an extra $2.50 a year in interest for every $1,000 in variable-rate balances that you carry. For a $5,000 balance, interest costs will rise $12.50 a year, or a little over $1 per month.
Q: How soon will the increase take effect?
A: For most cards, the first hike will take effect in either the current billing cycle or the next one. The timing of rate adjustments is set in the terms and conditions of your card agreement.

Now that you know the situation, here are five ways to reduce the problem of rising interest rates.

5 ways to offset rising card APRs

  1. Pay off, or at least pay down, your balance.
  2. Create a budget and stick to it.
  3. Buy time with a balance transfer.
  4. Lower your interest rate.
  5. Get help to manage debt



 1. Pay off, or at least pay down, your card balances



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2. Create a budget, and stick to it



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3. Buy time with a balance transfer



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4. Lower your interest rate



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5. Get help to manage debt



9 things you must know about debt management plans 

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Updated: 02-20-2018