Fed Rate Hike Also Impacting Credit Card Interest Rates

By: Sherrie Shorten

File Photo

SPLENDORA - The financial industry has been anticipating the recent ¾ point increase to the Fed rate for months. Comments from the latest Fed meeting indicate interest rates need to continue to rise until inflation is under control and the Fed is worried about just how high the Fed rate needs to go.

Federal Reserve Chairman Jerome Powell said, “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down.”

Previously, U.S. Treasury Secretary Janet Yellen said, “There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t — at the time didn’t fully understand.”

However, the financial industry has anticipated these problems. For the last year, credit card companies have been mailing out credit card offers, increasing limits on cards, and quietly updating their terms and conditions, including changing the terms of their rewards programs.

Many credit card offers contain variable interest rates. When the Fed rate increases, the interest rate on consumer credit cards increases too. Credit card companies do not need to notify consumers of the new interest rate because their terms and conditions already state the interest rate is variable.

When using credit, consumers should always use the credit card with the lowest interest rate. However, don’t trade a lower interest rate for a higher annual fee. The annual fee offsets the interest the consumer may or may not pay on the credit card.

Consumer Checklist

1. Review the interest rates on your current credit cards.
2. Adjust your spending habits to only use credit cards with fixed interest rates or the lowest interest rates.
3. When possible, apply for credit cards with 0% introductory offers. Most of these offers last 6 months. Then, use the card and pay it off right before the introductory period expires.
4. Look for credit card offers with lower interest rates and balance transfer options. Consumers can transfer the balance from a credit card with a higher interest rate to the new card with a lower rate.
5. Watch out for annual credit card fees. Annual fees must be paid whether the credit card is ever used.
6. At the end of every month, pay the credit card’s statement balance to avoid interest charges.
7. Making extra credit card payments during the month will reduce the interest accumulating on the card.
8. Review the rewards point balance on each card. Some cards have accumulated rewards points that could be used to pay down the credit card balance or trade for cash. As inflation increases, the terms of these reward programs are likely to continue to change. Take advantage of today’s offers because the offers are subject to change in the future.
9. Use credit wisely.

Even though the Fed increased the Fed rate by ¾ of a point, there is every indication they will continue to raise the Fed rate in the future, affecting the outstanding debt of individuals and businesses.

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Sherrie Shorten is the owner of Sherrie’s Bookkeeping Service with over 35 years of public accounting experience, including interacting with the Internal Revenue Service, the Texas Comptroller, the Texas Workforce Commission, and the Department of Revenue in various other states.