The federal funds increase is bad news for those with credit-card debt.
An FKD Feature exclusive

The Federal Reserve rate hike has had a domino effect on the economy, pushing up interest rates for everything including credit cards. The increase in interest rates will make it more difficult for people to pay off their credit-card debt.

It starts with the banks

An increase in the federal funds rate means that banks will need to pay more in order to borrow from the Federal Reserve, and there is a big chance that they will pass that cost on to consumers.

Most credit card interest rates are variable and are tied to the prime rate. The prime rate fluctuates with the federal funds rate, so as the federal funds rate increases, the prime rate goes along with it. As expected, this rate hike will cause credit-card interest rates to increase.

Unfortunately, banks are not obligated to inform you when they are increasing their rates, so it’s important to keep an eye out for any changes.

Credit card debt and higher interest rates

Almost 157 million Americans have a balance on their credit cards, meaning that the effects of this rate hike will be widespread. It’s estimated that this increase will cost consumers $1.6 billion in added interest charges this year.

The amount the average household pays in credit-card interest rates each year will continue to increase, and although it won’t be drastic enough to break the bank, it might be time to find a lower-interest credit card you can transfer your balance to.

Relying on credit cards

Many people have relied on credit cards despite knowing the dangers of credit-card debt. WalletHub conducted a study in 2016 on credit-card debt and found that consumers accumulated $60.4 billion in credit-card debt in the fourth quarter of 2016 alone. This is a dangerous trend, especially considering the fact that using a credit card just became more expensive. From the same study, WalletHub predicted that consumers will pass the record for outstanding balances by at least $100 billion in 2017.

Based on those numbers, a lot of people will have trouble with credit-card debt in the future if they don’t try to dig themselves out now.

Ways to protect yourself

It’s very easy to accumulate credit card debt without even realizing it, so owning a credit card means having a constant awareness of what you spend along with how you’re going to pay it off.

The easiest way to stay out of debt, or to prevent the accumulation of more debt, is to pay off your balances as quickly as possible. You should try to pay a little more each month than you typically would, because even a small increase each month will go a long way.

Another method is to transfer your balances to a credit card with zero interest. Although this is only an introductory rate and will change after a certain amount of time, it can help you get rid of your debt or simply get a handle on it without worrying about interest accumulating for a little while.


It can be difficult to manage a credit card on its own, but the federal reserve rate hike has made it much more difficult for those people who have a large amount of credit-card debt. As interest rates begin to increase, it’s important to start finding ways to pay off your credit card debt, even if it’s a little bit at a time.

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Header image: Adobe Stock


Posted 04.04.2017 - 04:56 pm EDT