Weekly Wrap: Higher Credit Card Rates Coming

Weekly WrapCredit Card Rates Going Up

The Federal Reserve hiked interest rates a half a point at its Wednesday meeting. As a result borrowing and credit card purchases will soon become more expensive.

Check Your Next Credit Card Bill

How soon? Very soon, Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report, tells Saving Advice.

“Credit Card rates will rise pretty quickly,” says Harzog. “The last time the Fed raised rates, it took about a month for the increase to reach consumers. That’s why it is important to pay down credit card debt.”

It’s Only Half A Point

You might not think raising rates half a percent is a big deal, but Harzog disagrees.

“If you have credit card debt,” she says, “half a point rate increase is a big deal. That’s because credit card debt is toxic debt. Interest on credit cards is compound interest and builds over time.”

From Pay Down To Pay Up

We paid off $83 billion in credit card debt during the pandemic. However, we have begun to backslide. We increased credit card debt by $52 billion in the last quarter of last year.

Government stimulus payments helped many get through the Covid-19 lock-downs. In addition, many people used that money to retire or reduce debts, such as credit cards. Now, with that money gone and prices rising, many are returning to form.

Devil Is in Details and APR

Here is how the Fed raising rates impacts your credit card bill.

When the Fed increases its federal funds rate, the prime lending rate goes up. When the prime goes up, the APR (annual percentage rate) on your credit card goes up as well. Almost all credit cards carry an APR.

Interest on credit cards is applied to outstanding balances. A higher APR means you pay more in interest on your purchases. In turn, that can mean it will take you longer to pay your card off.

What To Do

“It is important to pay down credit card debt now,” says Harzog.”

If you are able to pay off your credit card purchases each month, you will carry a zero balance. That means you pay…

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