Thursday, February 23, 2017 - Updated: 6:32 AM
In case you were not aware, credit card interest rates have recently hit a high. The reason is that almost all lenders have changed consumers to a variable interest rate card. This has resulted in much higher interest rates. Other factors that have contributed to this situation include the increase of loyalty-boosting credit cards. These types of cards offer a range of rewards, such as cash back or miles that can be used for obtaining free flights. While these types of rewards can certainly result in attracting consumers to stick with a card and even spend more money, there is a price for the issuer. In an effort to mitigate some of those costs, many issuers have elected to attach a higher variable APR to their reward cards. Making matters even more complicated is the fact that the Fed has recently tightened the country’s monetary policy, which has resulted in a hike of the federal funds rate. Those increases tend to result in higher variable interest rates for credit cards.
What all of this means for consumers is that it will cost more and take longer to pay off large amounts of credit card debt. Furthermore, the higher interest rates could push more consumers into delinquencies on their credit cards. In fact, such delinquencies have increased in the last year.
The good news is that there are some steps consumers can take to protect against credit card interest rate increases. The first step that most consumers should take is to look for opportunities to begin improving their credit scores. A consumer’s credit score can have a significant impact on the interest rate he or she is offered on a credit card. Basically, a higher credit score gives you more bargaining power. If you are using less than 30 percent of your available credit and you pay your bills on time, you have a greater chance of paying a lower interest rate. If you have already been working toward paying down your debt and your score has improved recently, do not hesitate to get in touch with your credit card issuer and ask for a reduction in your interest rate. You might be surprised to find they are willing to do it to keep your business.
Additionally, it’s important for consumers to make sure they are using a sound monthly budget. Although, it’s never good news when credit card interest rates are on the rise, it’s usually not the interest rates that get most consumers into trouble. Instead, it’s the inability to keep their spending under control. By keeping a detailed budget of all of your spending, you may be less likely to overspend and instead keep your spending on track.
It’s also a good idea to try to pay off your credit card balances in full each month. Remember, you only pay interest if you carry a balance from month to month. If you are able to pay off your balance every month, you can still take advantage of the rewards offered by your credit card issuer without falling into the trap of paying the high interest fees.
Another great way to combat rising interest rates is to use a balance transfer cards or personal loan, either secured or unsecured. If you are like most consumers you probably receive at least one offer in the mail each week asking you to transfer your balance and take advantage of a zero percent interest rate. Of course, the catch to this offer is that it is usually only available for a limited period of time. This is known as the introductory period. It’s the credit card issuers’ attempt to lure you to their card. At the end of the intro period, you will be facing an interest rate again. When used carefully, however, a zero percent interest rate transfer offer could be quite advantageous. If you think you can pay off your credit card balance during the intro period, you could take advantage of the chance to pay off or at least pay down your debt without paying any interest at all. Depending on the amount of debt you carry on your credit cards, this could save you a tremendous amount of money. Even if you are not sure you can pay it all off, it would still be worth it to give it a try. You might even consider looking at your budget to find areas where you can cut back on spending so that you can put more toward paying off your debt.