With the rise in credit card rates in 2016, many households have set goals of improving their financial situation. The holidays often prompt households to tackle their troublesome credit card charges, leading to a new year debt hangover.
According to the Matt Schulz, senior industry analyst at CreditCards.com, “The US Federal Reserve’s decision to boost fed rates by one-quarter of a percent will definitely raise credit card interest rates up to the same percentage and will affect many consumers in the long-run.”
Although the credit card increase may not be noticeable to many Americans, Schulz added: “It should sound the alarm to those consumers who maintain a balance on their cards.” According to the American Bankers Association, “About 40 percent borrowers keep a balance, whereas, 30 percent pay off their monthly bills.”
No Notification By The Card Issuers
Because three additional rate hikes have been announced in 2017, but the December rate hike could be a burden for many Americans. TransUnion predicts that about 9.3 million consumers are not financially stable to absorb the escalated interest cost.
Borrowers will not receive a notice from their card issuers about the increased borrowing rate. According to 2009 Credit Card Act, lenders aren’t bound to notify borrowers about the increased prime rate (The prime rate is charged by the banks, based on Fed’s rate.)
“People do need to be prepared for what those extra rate hikes could mean, because if you do carry a balance, and they do raise it two or three times over the next year, it can have a real impact on what you owe,” Schulz says. “It really is yet another reason why it’s so important to pay your credit card debt off as soon as you possibly can.”
For some consumers, paying the credit card debt burden really proves to be a daunting task. Households who are carrying the card debt burden usually carry $9,600 (an average balance). Every increase by quarter-point will add $25 in borrowers borrowing costs per $1,000.
What Borrowers Can Do
Follow these easy steps to reduce the impact of increased interest rates:
DON’T HOLD MUCH DEBT BURDEN
Start paying down your card balances before the rates hit to its highest level. For those who cannot clear their dues on time, Schulz advises to investigate rates of balance transfer cards.
Before you choose to transfer your balance be aware of the transfer fees. Banks typically charge 3% to 5% of the transfer amount. For instance, if you have a credit card balance of $ 10,000 the transfer fee could be $500. Therefore, you need to take your decision wisely.
Be Careful Of Card Rates Before You Sign-Up
Consumers, before signing up for new credit cards, must pay a careful attention towards sign-up bonuses and APRs, and read thoroughly all the fine print.
Jason Walowitz, president of United Financial Counselors says “You really need consider how you plan on using your card and if you plan on paying it off every month, or if you will need to make monthly balance payments.”
If you are interested in any credit advice, credit restoration, or budgeting services, please visit our website Unitedcounselors.org , and click the ‘Contact Us Now’ form and fill the required fields so that our counselors may reach out to you to schedule an appointment..