The Federal Reserve increased its key rate by another quarter of a point, recently. This increase brought the rate to the highest level in 15 years. The increase was made in an effort to stave off inflation by making borrowing more expensive. However, this fed rate increase will affect consumer’s credit card bills.
Here is how the most recent increase will affect consumer credit card bills:
While the Federal Reserve’s increase does not necessarily control how much interest the consumer pays on his or her credit card debt, it does control what the bank calls its “prime rate.” The prime rate, in combination with several other factors, helps determine the annual percentage rate or APR on consumer credit cards.
This most recent interest rate hike will likely increase credit card APR by 0.25%. For example, according to Bankrate, the average credit card interest rate is 20.4%, so this increase in APR will bring the interest rate to 20.65%.
For consumers who do not carry credit card debt from month to month, this interest rate increase will not mean much, but for those who regularly carry a balance, it could make paying down their balances that much harder. On average, if a consumer’s credit card APR increases by one percent, paying off the balance of the card will take two months longer.
If the consumer is unclear of what his or her APR is, this information can be found by looking at the account’s financial statement or by contacting the consumer’s credit card company.
What happens when the consumer is struggling to pay a credit card bill that already has a high APR? Bankrate suggests signing up for a credit card with a zero percent interest rate or low interest rate on a balance transfer promotion. These types of promotions allow consumers to transfer their balance from a high interest credit card to a low interest credit card for a period of up to 21 months. However, the key is to pay down the debt before the promotional period expires. By not doing so, the consumer risks walking away with an interest rate that is even higher than before.
If this method is not possible, it is recommended that consumers pay at least 10 percent more than the minimum monthly payment to pay off the debt in full. One commonly used method is known as the debt snowball method, in which the consumer pays down his or her debts from smallest to largest, focusing on the smallest debt first. Once the smallest debt is paid off in full, focus then shifts to the next one until all debts are paid in full in a sort of “snowball” effect.
As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges. It is not surprising with the high interest rates, unreasonable fees, harassing debt collection calls, penalties and never-ending minimum payments that do not even make a dent in your actual debt.
Filing for bankruptcy is a viable option for those struggling with insurmountable credit card debt. Chapter 7 is the fastest form of consumer bankruptcy and forgives most unsecured debts like credit card debt, medical bills, and personal loans. There are certain qualifications a consumer must meet in regard to income, assets and expenses to file for Chapter 7 bankruptcy, which is determined by the bankruptcy means test.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.