Photo: Joe Raedle/Getty Images
As interest rates are boosted by the Federal Reserve (Fed), banks’ lending rates increase, thus the debts accumulated by consumers on variable rate credit cards, also become more expensive and managing them over time will be a great challenge.
Last Wednesday, March 22, the Fed announced a ninth rise in interest rates, some 25 percentage points, placing them in the range of 4.75% to 5%. The decision of the makers of monetary policies takes place at a time of a lot of tension given the uncertainty of a true financial collapse after the fall of two banking entities.
However, the Fed continues with its objective of bringing inflation to the lowest digit, in the face of fears, in addition to the fact that economic activity is paralyzed and a recession is being faced. In this sense, the purchasing power of Americans has been affected, leading them to get more and more indebted with their credit cards.
Last month, according to data from the financial company Bankrate, more than 36% of Americans increased their debt on credit cards, surpassing even their emergency savings.
Therefore, if you have a high balance and are only paying the minimum amount of credit card debt, each month you would be disbursing more dollars that only goes for interest, which will lead to paying everything that is owed in more time.
In this case, the first thing to do is draw up a plan to pay off everything that is owed before another interest rate hike is announced again, specialists recommend looking for a balance transfer card with a 0% introductory rate.
Bankrate financial analyst Greg McBride says it’s best to “accelerate your debt payment efforts with a 0% balance transfer offer, some with a duration of up to 21 months. This insulates you from further rate increases and gives you an avenue to pay down the debt once and for all,” he said.
The economist advises to find out in advance what the charges that would have to be paid and the penalties for late payments will be. Since the plan is to pay the balances owed as soon as possible. Another viable option is to get a lower fixed rate loan.to what is established by the bank, but wanting to do so, it is recommended to request quotes from some lenders before completing the loan application.
Keep reading:
- Why Americans are accumulating millions in debt on their credit cards
- Why Americans are being more “cautious” with their spending, according to the Fed