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The Federal Reserve approved an interest rate increase last week. This is the first benchmark interest rate increase in more than three years. It is expected that there will be more rate hikes in 2022, but the number and size of the increases are unclear.
The era of near-zero rates of the pandemic is over with the benchmark rate raised by 0.25 percentage points and with several more hikes expected this year. While it may look like not much, if you have a big credit card debt, you may want to pay off that high interest debt before it gets more expensive.
Most credit cards come with variable rates, which means the issuer can change the rate any time. The benchmark rate increase is that "any time". Plus, more rate increases are expected this year, meaning your current credit card rate will become even higher. If you have a habit of paying only a minimum due payment each month, you will end up paying much more in interest with all rate hikes.
Luckily, there are ways to reduce the cost of debt. You can start paying off your debts now before other rate hikes. You can apply for a balance transfer credit card or for a personal loan to consolidate your debt and pay it off at a 0% promotional rate or at a lower interest rate.
If you do not want to open a new credit card, try re-evaluating your budget to see whether you can free up any cash to pay down your credit card debt. You may also want to increase your income, even temporarily.
Another rarely used option is to call your lender and ask for lower interest rate. Not many consumers try this, but it can actually work, provided you keep your credit accounts in good standing and do not have recent derogatory marks on your credit reports.
At the worst-case scenario, the federal funds rate may be brought to about 2.25%. That means your current credit card rate may increase by 2%. If the projections are that bad, you might want to act now.