BALTIMORE, Md. — Credit card bills are about to get more expensive.
People carrying balances on their credit cards can expect to see higher interest charges on their next statement.
The Federal Reserve is considering raising target interest rates another half-point in may after raising it a quarter point on March 16.
Inflation hit a 40-year-high last month and as painful as it is to consumers’ budgets, federal reserve officials see raising interest rates as one way to stop inflation in its tracks or at least slow it down.
As inflation goes up, not only do people have to pay more for the goods and services they buy, but now they’ll have to pay more for any of those things they bought with a credit card.
Inflation jumped to 7.9 percent in February. The US economy hasn’t seen numbers like this since the 1980s when inflation hit 8.4 percent.
The Federal Reserve is preparing to go back to the future for a solution to get inflation under control by raising its interest rates.
Florida Gulf Coast University finance professor Dr. Tom Smythe said “we need to slow down inflation.”
It’s like dominoes, a higher fed rate means a higher prime rate, which increases the variable rate on a credit card and a higher payment due on the next credit card bill.
“It’s not going to hit the mortgage and auto loan market hard right now, it’ll have more of an impact by the end of the year after a number of rate hikes occur,” Smythe said.
The Federal Reserve already raised rates by a quarter point this month.
For example, a person with a credit card, carrying a $5,000 balance with a 15 percent annual percentage rate, would have a monthly payment of about $201 to pay it off in 30 months. paying off the debt would cost them $945 dollars in interest.
If the APR goes up a quarter point, as the federal reserve did last week, their monthly payment goes up to $202 but the total interest paid over 30 months time is $961.
If the fed raises it and adds half a point in may, bringing the APR to 15.75 percent, the monthly payment goes up to $203, and the total to pay it off in 30 months is now $994.
It’s why financial experts advise people to start tackling those credit card debts now.
According to the website C-Net, credit cardholders can try the snowball method by paying off your smallest debt first.
No matter what the interest rate is on their card, a cardholder would keep paying the smaller balances until they work their way up to pay off the card with the highest balance.
Experts also recommend the avalanche method.
Cardholders would start by attacking the card or debt with the highest interest rate. Then, they would work their way down to the next highest rate, and so on and so on, until the balance is paid off.
These numbers are just examples as the rates and rules for individual credit cards vary.
Financial experts are concerned how much more the Fed will raise rates.
Even a small increase in interest rates can affect how much money consumers pay in the long run. The extra costs can add up for consumers with multiple credit cards and accounts.
Cardholders can combat rising interest rates by calling the bank associated with their credit card bank and ask if they will lower their interest rate.
Consumers also can try applying for a zero-interest rate card. If they get the card, they can transfer their high interest balances to the new card.
Another suggestion is to stop using a credit card and use a debit card instead.