Guide to rising credit card interest rates

Tools, tips for credit card holders with revolving debt and APRs going up, up, up

Guide to rising interest rates

Credit card rates are expected to rise in December and credit card holders who carry balances can, and should, take actions to minimize the cost.

The Federal Reserve raised rates in December 2015, December 2016, March 2017 and June 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
The Fed’s quartet of rate increases have been small so far – only a quarter of 1 percentage point each – but even those small raises can hurt some consumers. The credit bureau TransUnion estimates that 9 million Americans are already stretched so thin that even a small hike will cause strain. 

FAQs ON CREDIT CARD RATE INCREASES
Q: If the Fed raises rates, will my credit card interest rates go up?
A: It’s 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. 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


 

 

5 ways to cut your card debt as interest rates rise

Charged Up! podcast: Answers to your debt questions

Credit card debt payoff calculator


 

2. Create a budget, and stick to it

 

 

A generic budget: Guidelines for spending categories

7 things you never budget for (but need to)

Charged Up! podcast: The art of stretching


 

3. Buy time with a balance transfer

 

 

What is a balance transfer? 9 things you should know

6 steps to a successful balance transfer

0-percent balance transfer payoff calculator

Balance transfer card reviews


 

4. Lower your interest rate

 

 

Poll: You can get better credit card terms just by asking

Credit card debt negotiation in 3 (not) easy steps

Best low interest credit cards


5. Get help to manage debt

 

 

9 things you must know about debt management plans 

Save money and your score with a DIY debt management plan

When is a debt management plan a sound move?

 


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Updated: 12-13-2017