ADVERTISEMENT
About Our People Legal Stuff
Federal Reserve.jpg

If the Fed raises interest rates, it may be harder to pay down your credit card balance

0
The Fed raised its lending rate by 0.25 percent. That small number is a big deal.

WATCH  |  If the Federal Reserve raises rates, what does that mean for you and your money?

The Federal Reserve is meeting one last time before the holidays and everyone is watching.


Analysts are betting the nation's central bank will raise interest rates, which would only be the second time they've done so since the Great Recession. Last December, the Fed raised rates a quarter of a percentage point.

Federal Reserve close up.jpg
Federal Reserve close up.jpg (Credit: Circa)

Everybody thought another hike would come this year, but 2016 has been rocky. "The Fed wanted to be sure the economy was really on a stable footing before they did another rate increase," Stephen Oliner, former Fed economist, said.

What does that mean for you?

Interest rates on credit cards and some car loans could go up. For home buyers, mortgage rates may also tick higher. And for student debt holders, those with variable rate loans could see the interest on those loans inch up. 

Credit cards are variable rates, as are some private student loans. When the Fed raises rates, it affects variable rates.

AP_16247611669653.jpg
FILE - In this May 15, 2016 file photo, students embrace as they arrive for the Rutgers graduation ceremonies in Piscataway, N.J. More Americans are getting buried by student debt, causing delays in home ownership, limiting how much people can save and leaving taxpayers at risk as many loans go unpaid. (AP Photo/Mel Evans)

"You have to work harder to pay down that balance as interest rates go up," Greg McBride, Bankrate.com's chief financial analyst, told Circa. "As interest rates go up, that makes its way to you in the way of a higher variable rate."

Is there any silver lining?

Savings accounts will start to pay you more. Not quite right away (it may take a few years to see the effects), but banks will start to pay their customers higher on their savings deposits when short-term rates are raised.

Plus, wages have perked up lately and unemployment is down to 4.6 percent, so analysts predict that trend will stay the same.

"I do think interest rates will creep higher, but I do think that wages are going to creep higher as well. And that's just a function of the business cycle we're in," Larry Shover, chief investment officer of Solutions Funds Group, told Circa.

Meanwhile, stock markets tend to fret at even the mention of a rate hike, but economists agree an increase probably won't mute the current Trump rally.

Trump vs the Fed: Who's really driving the American economy?

WATCH  |   Everything you wanted to know about the Federal Reserve, but didn't think to ask.

Comments
Read Comments
Comments
ADVERTISEMENT
Facebook Twitter Instagram Pinterest Linked In List Menu Enlarge Gallery Info Menu Close Angle Down Angle Up Angle Left Angle Right Grid Grid Play Align Left Search Youtube Mail Mail Angle Down Bookmark