Credit Card Users Should Be Paying Attention With Interest Rates Set To Rise
It Could Soon Cost You More to Carry a Credit Card Balance
Advisors are noting the impact of rising interest rates on credit card users. For cardholders who carry a balance, it could soon cost more to cover monthly interest payments. That’s because the Federal Reserve is expected to raise rates as soon as March, potentially followed by three more increases before the year ends.
When the Fed raises rates, consumers face increased borrowing costs as banks pay more of a premium by way of the federal funds rate. Typically, credit cards have a variable rate that closely follows the central bank’s target rate. Industry analysts explain average annual percentage rates could rise by close to a full percentage point from 16% to 17%, which is near pre-pandemic levels.
Research Shows Many Credit Card Users Are Unaware of Their Rate
A survey from Bankrate found most credit card users don’t know how much they spend on interest payments. A change of less than one percentage point can cost hundreds of dollars, depending on how long you carry the balance. Additionally, data shows people are spending more and paying off debt at a slower rate than in previous years, so credit card users could start to feel the impact.
As lockdowns closed malls and shops in 2020, Americans set a record by paying off $83 billion in credit card debt. But habits have shifted since then. The Federal Reserve Bank of New York reported credit card balances rose by $17 billion in Q3 of 2021. November alone saw balances increase by 23%, and revolving debt is now greater than $1 trillion — a figure largely made up of credit card balances.
Credit Card Users Who Carry a Balance Have Options
Advisors urge credit card users to explore their options before interest rates and corresponding payments rise. One simple solution might be asking lending institutions for a lower rate. Others might consider taking out a home equity loan at around 4% or a personal loan closer to 10%, both of which might be preferable to specific credit card rates.
Zero-interest balance transfers are another good option some may look to take advantage of. Many cards offer as many as 21 interest-fee months on balance transfers, although there are associated fees. Advisors recommend researching these types of actions as interest rates could rise as many as four times before the year is through.
High-interest credit card debt can be a huge financial burden. If a person is only able to make minimum payments on their credit cards, their debt will only increase, and they’ll find themselves in a vicious debt cycle. Personal loans are one potential way to end that cycle, as a tool to pay off debt in one fell swoop and hopefully replace it with a single, more manageable loan.
Remember, however, personal loans aren’t for everyone. While they typically have lower interest rates than credit cards, they are still debt and should be considered carefully and used responsibly.
Ready to get rid of your credit card debt? Check your rate on a SoFi personal loan in just 1 minute.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.