What does the latest interest rate hike mean for your debt?
The Federal Reserve has raised interest rates four times this year and nine times in the past three years. The latest rate hike of a quarter percentage point was just announced. While that’s good news for people who have interest-earning accounts, it’s troubling news for people with credit cards, home equity lines of credit, adjustable-rate mortgages and other types of debt with variable interest rates.
One economist says that Americans with credit card debt will likely see the higher rate reflected on their bills within the next month or two. While a quarter percentage point may not sound like much, if you’ve got a $10,000 balance, that’s $2 extra a month — for one card.
People with home equity lines of credit (HELOCs) will also see a rise in their rates within the next couple of months. While HELOC rates are considerably lower than credit card rates, the balances are often higher.
If you have an adjustable-rate mortgage, your payment may not be impacted for awhile. That’s because the rate modifications on mortgages occur just once a year. You may want to find out when yours is scheduled to change, since your payment could increase noticeably.
Credit card holders can work to offset these regular rate increases by paying down or paying off as many cards as possible. You may want to shop around for a credit card or other loan product with a lower rate to which you can consolidate your credit card debt. If you have a HELOC, you might look into refinancing it to a fixed-rate line or one with a better adjustable rate. You can also do some rate shopping on student loans as well, as private student loan rates and car loan rates, are tied to the prime rate.
If you’re being weighed down by debt and you don’t see a path out, it may be time to consider whether filing for bankruptcy might be your best option. An experienced attorney can review your situation and offer valuable guidance.