Raleigh, N.C. — The Federal Reserve Wednesday boosted interest rates by three quarters of a percent. While the move is meant to slow inflation by decreasing consumer spending and borrowing, the rate hike will cause anyone who is borrowing money with a variable rate to pay more in interest.
This is the fourth rate hike this year, so you may have already noticed a higher interest rate on your credit card.
“The rates that you pay on your balances have shot up, close to 20% for many people. That’s a big jump from last year when it was down to 14 to 15 percent,” said Penny Wang, the deputy money editor for Consumer Reports.
5 On Your Side crunched the numbers
The average credit card balance for a person in North Carolina is $5,121, according to analysis by Experian.
If someone were to pay that off at a rate of $200 a month at a 14% interest rate, it would take them 29 months and cost them $951 in interest at the current rate.
However, with a 20% rate, it would take someone two months longer and they would end up paying more than $1,464 in interest.
What steps you can take to save money if you have credit card debt
With the newly announced rate hike, your interest rates will likely go up once again, so it’s important to pay it down as much as you can.
If you don’t have enough cash to pay off your balance, consider a balance transfer to a credit card with a promotional 0% APR period. The promotional 0% interest rate is an introductory rate will offer on a new credit card. It can last from 6 months to a year.
Once you transfer your credit to this card, if you pay your credit card off quickly, you can avoid paying off high interest rates.
However, keep in mind that most balance transfer credit cards have a one-time 3% fee. The fee is a percentage of the total amount of credit you have on your credit card and is still less than the amount you’d be paying in interest .
But Wang has a warning for those who decide to take this route. That 0% APR doesn’t last forever.
“Makes sure you can pay it off within the transfer period or you will get socked with those higher rates once again,” Wang said.
If your credit card has a variable rate, you can find your current rate by checking your monthly statement or you can call customer service and ask.
Paying your bill on time and having a good credit score will help keep your variable rate low.