It’s been a strange few years any way you look at it. Bouncing back from the COVID-19 crisis and all of the economic havoc it wreaked isn’t going to happen without a few more big changes. Namely, the first significant Prime Rate hike in the last three years.
This increase, on its own, isn’t much of a game-changer. The pressing issue that borrowers need to take into consideration is that the rate hike we’ve already seen is likely going to have some friends following closely behind. Those in the know have estimated about half a dozen more rate changes on the way in an effort to contain the inflation that has already begun to creep into consumers’ daily lives.
So, what does all of this economic jargon actually mean for you? Let’s translate it clearly.
Most of us have a credit card (or two or three). And most credit cards are designed with a variable rate for both purchases and balance transfers. That means the interest rate you’ve been paying can shift along with changes to the Prime Rate. Therefore, a rate hike from the Fed probably means a rate hike to your credit card APR.
Now a 0.25% increase in your interest payments shouldn’t send you into a financial tailspin. But remember that this rate increase is expected to be the first in a series. When the dust settles, people carrying a lot of credit card debt are more likely to feel the impact of such climbing interest payments.
Every consumer manages credit risks differently, but if steadily creeping interest rates are stressing you out, you might want to consider applying for a credit card with a 0% interest introductory balance transfer offer. Depending upon the associated balance transfer fees, this strategy could be the perfect escape from high interest. Some credit cards are offering more than a year interest-free on qualifying balance transfers.
Like we said, each borrower’s circumstances are a little different. So, if you’re the type who prefers paying off your credit card bills in full each month, what does an increased Prime Rate mean for you? As far as your credit cards go, you might not feel the rate changes at all. While the interest rate for things like cash advances and existing balance transfers would likely climb, not taking on any revolving debt (debt that you carry each month as opposed to debt that you pay off in full each month) could help you dodge the higher payments on your unsecured debt altogether.
It’s going to take a few rate increases before we start to see an impact on inflation. For a few months, we'll continue to see high prices, high interests and high inflation but eventually, the inflation and prices will start to come down. With an informed strategy, you can keep your finances a step ahead of these forecasted rising rates.