The credit card interest rate is said to be gearing up for an increase this year. The Federal Reserve had been holding back since the Great Recession to help consumers minimize their losses despite their many debts.
Since the economy is already improving, the employment rate is rising and the overall financial situation of Americans are stabilizing, it may be time for the interest rates to rise once more.
According to an article from USAToday.com, however, we still have time to adjust to this news. The raise will not yet happen – at least for now. The article revealed that the Federal Reserve will keep the rates as it is – but it will not last for long. Experts are saying that although this is good news, consumers should not take this lightly. The interest rates will change and that will go up. It is very unlikely that it will go down. If it does go up, one of the financial products that will be affected is your credit card interest rate.
When it comes to interest rates, credit cards are notorious for being one of the highest in the financial sector. If you know that this rate will go up very soon, you need to start acting so it will not ruin your current financial position.
5 moves to before the interest of your credit card is raised
Although the Federal Reserve said that they will not raise the rates yet, Janet Yellen, the chairwoman of the Federal Reserve, said it will increase before the end of 2015. This article published on BostonGlobe.com, revealed that Ms. Yellen believes that the central bank will raise the interest rate despite the recent slide in the value of stocks.
If she is saying that it will rise, then you should know that your credit card interest rate will also increase. If that is a certainty, you need to start acting now to make sure that it will not affect your finances. Although the exact date when the rate will rise is not yet determined, you need to start acting on it as early as now.
There are 5 financial moves that you can do in order to prepare for this impending rate hike.
- Stop using your card irresponsibly. First of all, you need to review how you are using your credit card. You want to make sure that you will use it with a plan in mind. For instance, do not use it for everyday purchases. No matter how small the amount is, that can accumulate and grow into a big amount at the end of the month. Do not use your card on an impulse. It has to be planned so you can allocate the payment in your budget for that month.
- Pay off your balance. The key to keep the credit card interest rate increase from affecting you is simple. You need to pay your balance in full at the end of the month. The interest is usually a problem if you carry over a balance to the next billing cycle. The interest from the balance will be capitalized into your next payment – thus growing your payments unnecessarily. According to the data from the FederalReserve.gov, the credit card debt in May is $901 billion. If you compute the average debt of each household, it is a staggering $15,863. Try not to make your balance grow if you can help it. Use your card if you know that you can afford to pay everything at the end of the month.
- Consider balance transfer. The third financial move that you need to make is to consider transferring your balance into a zero interest credit card. Balance transfer is a type of debt solution that will allow you to pay off your credit card balance without fearing that it will grow because of the interest. What you will do is to search for a 0% card that you can apply to. You will transfer your current credit card balances into this card. Be prepared to pay a transfer fee that is usually a percentage of your balance. Once it is transferred, you will enjoy a couple of months of paying off that debt without worrying about credit card interest rate. Everything you will pay will be put into your principal balance – thus helping you lower your debt significantly.
- Look for a low interest card. If balance transfer is not possible, you should at least look for a low interest credit card. Thanks to the Internet, comparing the interest rate of credit cards is easier now. Once you have found a couple of cards that you would like to apply to, you may want to apply for them. Start using them for purchases while you pay off the higher interest cards – at least, if you cannot transfer your current balance.
- Build up your credit score. Finally, the financial move that you need to make before the credit card interest rate hike is to improve your credit score. This is very important – especially if you intend on negotiating your interest rate. When you have a high score, that means you are responsible when it comes to your credit use. You can be trusted to pay your loan back. When you are considered to be a low risk borrower because of your credit score, creditor will not feel the need to give you a high interest rate to protect their investments.
Make sure to check these financial moves to see if you can minimize the effects that the credit card interest rate hike will bring to your finances.
How to use your credit card without fear of the interest rate
The truth is, there are three things that you can do to use your credit card without fearing that the high interest rate will destroy your personal finances.
- Pay your balance in full at the end of each month. The first option is to pay your balance in full. This is one of the most important habits that will make you a smart credit card user. As mentioned, the credit card interest rate will only affect your debt if you will pay off all the balance when the billing arrives. Only the balance that you carry over at the end of the month will be affected by the high interest. If there is no balance carried over, then no finance charge will be computed based on your interest rate.
- Learn how to negotiate your rate. If you think that your rate is something that you can no longer afford, feel free to negotiate with your creditor to give you a low interest. Some people will use a low interest offer from another creditor to get their current credit card company to lower their rate. What you can do is to call your current creditor to inform them of the offer. Tell them that you are considering this offer but you would like to know if they can give you a counteroffer so you will not transfer to the new creditor.
- Know your rights. Knowing is sometimes the best way to keep your interest rates low. You may want to research the Federal Acts that give you rights especially when it comes to your interest rate. For instance, did you know that you can actually say no to your creditor if they decide to raise your interest rate? They are mandated by the government to tell you if them plan on raising your rates. In case you do not want to accept this increase, you have every right to tell them. There are three things that can happen. First, the creditor can retain your current interest rate. The second is you will negotiate a rate that you are both comfortable with. The third and final scenario is you will close your credit card account with them. If you have a balance, you will discuss the best payment terms for that.