The Federal Reserve is raising interest rates for the first time since 2006. The increase will bring the rates up between a quarter and half a percent, bringing some impact to anyone buying a home, investing or holding certain types of credit card debt.
Whether or not the change will impact your credit card debt depends on your account. If you have a credit card at a fixed rate, then the company is not allowed to raise the rate under 2009's Credit CARD Act. Variable interest rates, which are much more popular with credit card companies this year, can be altered as interest rates change.
The rates associated with variable interest accounts are usually based in part on the prime rate. The prime rate typically rides about 3 percent higher than the Federal Reserve rate, so if your rate is based on that prime number, it is likely to change. Experts say the changes to your interest rate might happen on your next bill, but they could also happen as late as the next quarter.
If you're in the process of applying for a credit card, you can expect to see an interest rate that is slightly higher than what you might have originally expected. Credit card companies usually begin with new accounts when rolling out changes in rates.
The good news is that the interest rate hike is only a fraction of a percent. Someone with a balance of $5,000 on an 18 percent interest account would only see a difference in minimum payment of about $1 a month. For those facing financial struggles, every dollar matters, though. Any increase in interest can make it that much harder to catch up. Understanding your financial situation, including how interest affects payments and financial plans, can help you understand if bankruptcy or another legal debt relief option might be a good thing to consider.
Source: Money, "How the Fed Rate Hike Will Affect Your Credit Card Debt," Ethan Wolff-Mann, Dec. 16, 2015