Credit card

What will happen to your credit card and debt if the Fed raises interest rates this year

MULTIPLE interest rate hikes could be coming soon – and Americans will want to be prepared for the potential impact of this on their finances.

Over the past year, inflation has spiraled out of control due to strong consumer demand and low inventories.

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Americans could end up paying hundreds of dollars more in interest over time

The latest data from the Labor Department shows that the inflation rate for December was 7%, the highest in four decades.

To combat rapidly rising costs, the Federal Reserve is now planning up to four interest rate hikes in 2022.

What rising rates do is make it more expensive to borrow and dampen demand.

So this will likely affect your credits, assuming the Fed acts.

Currently, the average American has a credit card balance of $5,525, while paying an annual interest rate of around 16%, according to credit reporting firm Experian.

But with several hikes planned, credit card rates are expected to return to around 17% by the end of 2022, Ted Rossman, senior industry analyst at CreditCards.com, told CNBC.

If you’re the type to make the minimum payment, it could cost you hundreds of extra dollars over time.

In fact, Rossman calculated that an average credit balance takes 16 years to settle by just making the minimum payments and costs more than $6,000 in interest rates alone.

Factoring in a rate hike of just under 1% will cost you an additional $300 and $400 in interest over those 16 years.

Recently, personal finance expert Mark Williams of Brokers International gave the Sun some advice on how to manage your finances during this year’s soaring inflation.

One thing he recommends Americans do is take a look at their credit cards and see if they can get one with a lower interest rate as well as rewards such as cashback. silver.

“There are hundreds, probably thousands of credit cards out there that give you something in exchange for your credit instead of nothing,” Williams said.

“If you must use plastic, use one that gives you an added benefit.”

Another personal finance expert recently broke down how much of your salary should be spent on three sets of expenses.

Plus, see how paying off credit debt early can lower your score.

A money expert reveals three ways to pay off a credit card to the max

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