3 Ways the Fed Affects Your Credit Card

October 7

Everybody has been feeling the effects of inflation. We’re all earning less and spending more with no end in sight. Do what you can and stay informed, learn about how the Fed’s fight against inflation affects you and your credit card, and understand your options.

If your credit card debt is too much to handle with the rates still rising, examine your options. You may need a reliable bankruptcy attorney in San Marcos & beyond to provide you with a clean slate in these tough times.

What has the Fed done?

What has the Fed done

In the fight against inflation, the Federal Reserve has been pushing its target interest rate higher and higher. Since inflation is the worst that it’s been in the last 40 years, the interest rate surge is far from over.

In September, the Federal Open Market Committee (FOMC) issued a statement announcing yet another rate hike which will increase the federal funds rate by 75 bps, to a range of 3% to 3.25%. We’ve seen the same hikes in June and July following slightly smaller ones in March and May. We can expect another two meetings of the FOMC until the end of 2022.

Prices have risen across the board to a staggering 6.3% this year and the inflation and the fight against it remains uneven.

How does the Fed affect my credit cards?

How does the Fed affect my credit cards

The pandemic-related inflation has been further impacted by the war in Ukraine, and we can feel the consequences on the housing market and our credit cards. Here are 3 ways the Fed’s rate hike affects your money:

Credit card debts get more costly

Once the Fed raises interest rates, this increases your credit card debt. Higher fed funds rates make for higher borrowing costs, which in turn reduces the demand for borrowing among banks and other financial institutions.

Most banks charge a variable APR (annual percentage rate) based on the prime rate and a percentage that should cover operating costs and make a profit.

As the variable APR can fluctuate, your bank is likely to raise your APR when the Fed increases its federal funds rate. The higher the rate, the harder it will be for you to pay off your debt.

Rates on savings accounts slowly go up

With increasing inflation, higher fed funds rates have impacted savings account rates. We can see that banks are gradually raising the APY (annual percentage yield) which they pay on savings accounts. As they want to attract deposits and compete with other financial institutions, some banks will pay up to 5% APY on certain deposits. 

Mortgages and loans are more expensive

The Fed’s rate hike impacts people taking out loans to buy homes, and it’s a tell-tale sign of a housing market recession. Mortgage rates reached a new peak in September, 6.02%, which is the highest in the last 14 years.

ARMs (adjustable-rate mortgages) and HELOCs (home equity lines of credit) are linked to the Fed funds rate, so we can see these rates going up as the Fed increases the rates. As for the fixed-rate mortgages, they have been impacted by the new Fed policy, inflation, and recession.

What you can do is lock your interest rate before the rates go even higher and refinance later in case the rates drop.

Can’t keep up with your credit card and other debt? Consult with a reputable bankruptcy attorney in San Marcos

One of the ways to deal with the current recession, inflation, and Fed rate hikes may be to file for bankruptcy. By getting a fresh start, you’ll eliminate debt, be able to deal with the unpredictable occurrences, and get ahold of your financial situation.

Filing for bankruptcy may be a daunting task, so it’s crucial to hire a qualified, experienced, and reliable lawyer specializing in this field. You can count on Chang & Diamond to guide you through the entire process seamlessly. We’ll answer all your questions during our free initial consultation and provide you with skillful representation until you get to the other side.

Clear your head on a hike across Double Peak and let us get you back on track!