In an effort to stabilize the U.S. economic system, the Federal Reserve announced its sixth rate increase this year. It increased rates by three quarters of a point.

This means that consumers will see an increase in the market interest rates for credit cards and auto loans. Ligia Vado is senior economist at Credit Union National Association.

The latest interest rate increase won’t have any impact on your wallet if you pay your credit card bills in full each month. If you have a large credit card balance, your monthly payments will be more costly.

What you need to know

What should you expect from your credit cards

No matter if you’re looking for a credit card or are managing one, the Fed’s most recent rate hike will increase your credit card’s annual percent rate.

The Monthly Payments for Balances will Increase

An ongoing balance can cause your minimum payment requirements on your credit card to increase as interest charges could be factored into the calculation. It could take up to two billing cycles before you see any changes in your statement depending on which issuer.

In general, an issuer cannot raise interest rates for new purchases without giving you at least 45 days notice. However, the variable APR of credit cards that is directly affected by the Fed’s rate rise is an exception.

Actually, the issuers are not required to notify you. This means that the interest rate on your credit card may be higher than you thought.

Credit cards with higher APR

You’ll get a lower baseline annual percentage rate if you apply for a credit card, or if you have a promotional offer with a 0% intro APR that’s ending.

Avoid opening a store credit card during the holiday season if you are tempted to do so. You may be tempted to go into debt by the sky-high interest rates.

What can you do to reduce the impact

There are two ways to reduce the impact of Fed interest rates hikes: explore your options for getting out of debt with current credit cards, or switch your spending to a card with a lower rate.

Explore your debt-payoff options

No matter how high the Fed raises interest rates, credit card interest is typically more expensive than other loans. It is important to look into your options for getting out of debt as soon as possible.

Jen Hemphill, a certified financial counselor and host on the podcast “Her Dinero Matters”, says that you need to understand the history of your debt before you can start. This will help you avoid adding more debt.

After identifying the reasons for your debt and making the necessary adjustments to your spending, you can start to explore options to repay your credit card debt.

A balance transfer card

If you have good credit (690 or more), you may be eligible for a balance transfer credit card. This allows you to move high-interest debt from another issuer onto your account for a lower rate.

Hemphill says that you can get them at 0% for a period of 12 months. This can be a great option to save money but you must use it wisely and plan .”

Lakeycha Pinckney is a South Carolina teacher who used this approach to balance transfer when she found herself with $4,500. She weighed the fees associated with transferring the balance when she was offered a balance transfer by her credit card issuer.

A balance transfer card with a minimum annual fee and a fee for balance transfers of 3% or less should be ideal.

Pinckney says that she did the math and sat down to do it. She also documents her financial journey via Keycha Budgets, her YouTube channel. “In the end, it’s more cost-effective to pay the fees than all the interest span>

A fixed-rate debt consolidation loan

Consolidating debt from multiple credit cards may be an option. This will combine all your outstanding balances into one fixed rate loan payment. It makes it much easier to manage. You can use the money to pay your balances, and then repay the loan in equal installments over a specified term. A loan may be available to you if your credit score is 689 or less. However, higher credit scores are eligible for lower rates. To determine if the loan is worth it, consider the cost of interest as well as fees.

A debt management plan

A counselor at a non-profit credit counseling agency can help you determine if you are eligible for a debt management program. These plans may lower interest rates and eliminate fees for a fee. This will allow you to make greater progress with your debt. It may be worthwhile to pay the fee if your options are limited by less-than-ideal credit, or for other reasons.

Get lower interest rates

You can save interest on large-ticket purchases by getting a 0% introductory rate for purchases if you plan to pay them off over time. Switching to a credit card that has a lower interest rate is a good option for ongoing credit card balances. You will be able to save a lot of interest and still earn rewards. Federal Reserve data shows that the average APR for credit cards that have incurred interest was 18.43% as of August 2022.

Credit unions have lower interest rates than banks on debt consolidation loans and credit cards. You might consider looking there. According to the National Credit Union Administration, the national average rate on a “classic credit card” was 11.64% at credit cooperatives and 13.05% for banks in September 2022. Federal law also sets a maximum interest rate of 18% for credit cards and loans at federally chartered credit cooperatives. Vado says that this cap is unaffected by Fed interest rate hikes.

Vado says, “We are a non-profit organization. We do not have stockholders.” “We are owned 100% by our members. We redistribute the money we make by paying lower interest rates for loans, higher yields on savings accounts .”
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A credit union membership is usually required. However, depending on your location or work you may be eligible. Some credit unions will allow you to join by making a $5 donation towards a partner organization.

Why is a debt-payoff strategy so important now

To avoid the unforeseeable, it is important to immediately begin to reduce your debt. A plan can help you minimize the potential impact of future Fed interest rates hikes, holiday spending, and a possible recession.

Credit unions and lenders are known to tighten lending standards when the economy is in trouble. If this happens, debt-payoff options might become more difficult.