Many credit card users don’t bother to read the fine print of their agreements with credit card providers. Unfortunately, the language in that fine print might result in increased payments for individuals who carry balances on their accounts.
In March, the Federal Reserve announced it would increase the fed funds rate from 1.5 percent to 1.75 percent. These rate hikes can make it more expensive to pay off your account balances since, for many credit cards, there is a link between the fed funds rate and the interest rates charged.
According to the American Bankers Association, 43 percent of card holders carry a balance each month, and the Federal Reserve reports that outstanding card debt hit a record $1.023 trillion in November 2017. Rising credit card debt is a leading reason why people find themselves in a financial hole.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves overwhelmed with debt. We offer a free consultation to evaluate your financial situation by looking at your debts, your income, and your goals and coming up with a debt-relief plan that’s best for you. Call one of our conveniently located office branches or email for your free consultation.
Why the Link with Credit Cards?
The federal funds rate is the interest rate banks charge each other to borrow money. It is also used to set interest rates for how much you pay to borrow money and how much you earn in interest through bank products like savings accounts and CDs. If the fed funds rate rises, so does the interest rate banks pay savers and the interest people pay on credit cards, mortgages, and other loans.
Credit cards typically have a variable interest rate, which means that costs for anyone keeping a balance can soar when the fed funds rate goes up. According to the Federal Reserve, the average interest rate for credit cards issued by commercial banks rose from an annual percentage rate of 14.99 percent in November 2017 to 15.32 percent APR in February 2018.
It is expected that the Federal Reserve will increase the rate even further – perhaps three or four times this year. The purpose of raising rates is to protect against inflation that occurs when the economy is growing, the unemployment rate is down, and wages are increasing.
The Problem with Credit Cards
Using credit cards is not necessarily bad and can even be a way to manage purchases – as long as you pay off the balance each month. Unfortunately, too many Americans use their credit cards to keep pace with increased living costs. And since credit cards are one of the most expensive ways to borrow, people find themselves deeper in debt.
Those who don’t pay what they owe in a timely fashion, or only pay the minimum balance, wind up in situations where debt increases quickly, accumulates and never gets paid off. This gets even more expensive as interest rates rise.
What to do About Rising Rates
You can’t stop rates from rising, but there are ways to minimize how the rate increase affects you. Consider the following tips:
- Examine your credit card statements and other bills. Consider what purchases are really necessary and determine why you are getting into debt. You might not have been able to help a one-time medical emergency or car repair, but if you are regularly living beyond your means, you need to adjust your lifestyle by trimming expenses or increasing your income — or both.
- Don’t make new credit card purchases until you pay off your current balances. Then, do not charge anything unless you can pay off the balance in 90 days or less. By paying your balance in full each month you will avoid paying higher interest charges when the credit card rate rises.
- Pay off the highest interest cards first, and put other cards on automatic payment schedules so at least the minimum monthly payment is made on time. When you have paid off the high-rate card, go on to the card with the next highest rate. Or pay off the cards with the smallest balances first to give yourself some momentum.
- Seek better interest terms. It may pay to consolidate your debt through a personal loan with a rate that will remain fixed even as the Fed rate rises. Compare rates from different lenders to ensure you’re getting the best deal.
- If you can qualify to do so, transfer balances on cards with high rates to cards offering a zero percent introductory rate. However, be aware that many cards charge transfer fees that may be 3 percent or more of the amount transferred, and you will lose the special rate if you get 60 days or more behind.
If you have taken these steps and still find yourself drowning in debt, you may want to consider the fresh start available by filing for bankruptcy. Bankruptcy is a legal way to have many debts forgiven. The most common types are Chapter 7 and Chapter 13. Chapter 7 is a full liquidation of all assets that will eliminate many debts, including those for credit cards. Chapter 13 may allow you to keep property, such as a mortgaged house, while you complete a three- to five-year affordable payment plan to have debts forgiven.
Contact Us and Get Help
If you can no longer handle your rising debt, take the first step toward relief by contacting the seasoned and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer. We offer a free initial consultation to evaluate your entire financial situation and determine the best fit for your particular circumstances. We will make sure you are aware of all your options and help you decide on the path to a brighter future that makes sense in your individual case. We will walk you through the process every step of the way.
Delaying can only worsen your situation, so call one of our conveniently located office branches or email for your free consultation so we can determine what debt relief solutions will work best for you.