How the latest Fed rate hike will affect your credit card bill
PHOENIX (3TV/CBS 5) - When Yolanda Poullard got married, she and her husband combined finances and realized they were facing $15,000 in credit card debt. “My credit card debt happened over the years,” Poullard told On Your Side. “Things go up and your paycheck doesn’t go up as fast.”
It’s a familiar feeling. Rick LeClair was buried under an even bigger balance. “Our credit card debt was probably $120,000,” he said. “When they started sending me credit card offers, I was like, ‘Ok, gimme, gimme, gimme,’ and I took them and just went crazy. I went absolutely crazy with credit cards and it was terrible.”
Collectively, Americans have nearly $900 billion dollars in credit card debt, and if you carry a balance, your bill is about to get more expensive, as the Federal Reserve raised its key interest rate for the fifth time this year. Currently, the average interest rate on a new credit card offer is more than 21%, according to LendingTree’s Matt Schulz. “You can expect that average to go up to over 22% in the next couple of months because banks don’t tend to waste a lot of time on raising rates when the Fed does,” Schulz said.
“It’s going to become more important than ever to create a spending plan and create a plan of attack on how you’re going got get those balances down,” said Thomas Nitzsche, a spokesperson for Money Management International. The average client for the non-profit credit counseling agency has more than $18,000 in credit card debt. “What we have determined is that over the course of this year, the seven or so rate increases this year will mean almost $5,000 in interest over the lifetime of someone who is only making minimum payments,” Nitzsche said.
To tackle more than the minimum, you have to create a budget, stick to it, then look for ways to cut costs. “Look at your insurance, home and auto. Look at cable, satellite services. Look at your gym membership. Look at your credit card balances. On average out there, a consumer can save $200 to $300 a month just by going in and renegotiating the terms of those particular things,” said WaFd Bank’s Brian Larsen, “That has an immediate impact.”
LeClair took a more aggressive approach. He and his wife sold their home, downsized to a smaller mortgage, and used the cash they made from the sale to pay off their credit card balances. “We still have the credit cards, but I’m smarter with them now,” LeClair said. “I use it. I pay the balance. I use it. I pay the balance.”
Poullard continues chipping away at her remaining $4,000 balance. “I just keep going,” she said. “I stopped running from it, denying that it was there. It’s really just a little at a time.”
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