It is possible, and for a great reason.
- The Federal Reserve raises interest rates to fight inflation.
- Since credit card interest rates are variable, you could end up spending more on your debt next year due to these Fed rate hikes.
At this point, it’s really no secret that inflation has increased. Across the country, consumers are spending more money than ever to put food on the table, fuel their cars and keep the lights on. And many had to loot their savings or accumulate dozens of credit card debt In the process.
If you’re in the latter camp, you might take comfort in the fact that you’re in good company. But you may also need to prepare for the fact that your credit card debt could start costing you more in 2023.
Why credit card debt could get even more expensive
The reason credit card debt is often hailed as dangerous is twofold. Unlike personal or car loans, which usually come with fixed interest rates, credit card interest can vary. This means that the interest rate on your debt could increase over time.
In addition, too much credit card debt can damage your credit score, making it difficult to borrow affordably when you need it. This remains true even if you make all your monthly payments on time.
Now interest rates credit card load tend to be high to begin with. But next year, you may find that your rate increases even more.
Why is that? Well, it has to do with inflation.
The Federal Reserve attempts to curb inflation by raising interest rates. The Fed does not set credit card interest rates. Rather, it oversees the federal funds rate, which is the rate banks charge each other for short-term borrowing. But when that rate rises, consumer borrowing rates tend to follow. So over the coming year, it will come as no surprise to see interest rates on a range of borrowing products, including credit cards, rise.
What to do if you have credit card debt
If you have a balance on your credit cards that is already costing you money, you can anticipate interest rate hikes by paying it off. Oh, but wait — you might not be able to pay it back because your savings fell due to inflation. And frankly, it’s an ugly situation to be in.
But in this case, all is not lost. First of all, you can always start reduce that debt as much as possible, even if it means putting an extra $10 here and $20 there. You can also try taking a seasonal restlessness and use your winnings to pay down your credit card balances. In the coming weeks, many businesses will likely need more labor during the holiday rush, so you might have a good opportunity to take on some extra work – and cash.
Otherwise, pay attention to the interest rate on your credit card debt and see if you can find ways to make that debt cheaper. One option you can potentially consider is a balance transfer, where you transfer your existing debt to a new credit card with a lower interest rate than you are currently paying. Some balance transfer cards even come with a 0% launch rateso you might be able to get a stay of accrued interest for a while.
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