Credit card rates are expected to hit a record 19% on average

Photo (c) Johnnie Davis – Getty Images

The Federal Reserve has started raising its federal funds rate, one of the reasons Wall Street is in the midst of a free fall. But the policy change also affects consumers who have accumulated large balances on their credit cards.

Credit card interest rates move in sync with this key interest rate, and those already high credit card rates have started to rise even more. Bankrate experts predict that the average credit card interest rate will hit a record 19% later this year.

The rate hike means the minimum payment cardholders must pay each month will likely increase as well. Credit card companies charge between 1% and 5% of the balance as a minimum payment.

Only paying the minimum payment each month means most of the payment is spent on interest, extending the time it takes to pay off the balance to zero. When the interest rate increases, even consumers paying more than the minimum will face a longer repayment period.

According to personal finance experts, credit card debt is one of the biggest obstacles to building wealth. This can make it more difficult to buy a home or pay an emergency expense.

Lock the cards

Jay Zigmont, certified financial planner and founder of financial advisory firm Live, Learn, Plan, says literally locking down your credit cards can help get you on the right track.

“When you don’t have optional debt, you have to live within your means,” Zigmont told ConsumerAffairs.

To live within your means, Zigmont says you need a budget. It is important that the budget is tailored to the individual and prioritizes ‘needs’ rather than ‘wants’.

“You need a roof over your head and basic transportation,” he said. “You might want a nicer house or a new car. Be wary of things that you “believe you deserve”. More often than not, when people say they “deserve” more, it’s because of outside influences, including friends, family, and social media. »

Paying off new credit card charges in full every month is also necessary to avoid costly debt. Consumers who are already struggling with a credit card balance can pay it off faster by transferring the balance to a credit card that charges no interest for a year or more.

Check out ConsumerAffairs’ guide to the best balance transfer cards for more information.

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