Fed interest rate hike means credit card debt is more expensive

ROYAL OAK, Mich. (WXYZ) – The Federal Reserve raised interest rates for the fourth consecutive time by an additional 0.75% on Wednesday. It aims to increase the cost of borrowing so that people spend less, which decreases demand.

This is the tool the Fed has to drive prices down. Many hope it works.

“I feel like every time I go to the grocery store, I spend more,” said Jason Ross, a student at Michigan State University College of Osteopathic Medicine.

For Jason Ross, the action of the Federal Reserve looks like a lose-lose scenario. Not only is he concerned about expenses, but as a fourth-year medical student, he is concerned about the debts he has accumulated.

“With rates going up and my loan money being used to pay off my credit card debt, it’s going to be a huge mess,” Ross said.

He views his credit card and student loan debt as a strategic investment, making his career possible, but as the Federal Reserve raises rates, the cost of that investment increases with those rates. The reason? Banks are passing on this increase in borrowing costs to consumers with student loans, home loans and credit cards.

Credit card rates have gone from an average of about 16% in February to about 19% now. This means that every day, on a $1,000 balance, people have gone from about $160 in interest to about $190 in interest every year if they don’t let that balance grow.

“Don’t get into it, but if you’re in it, you need a strategy to pay it off,” said Paula Christine, a money coach. https://paulachristine.com

Christine says now is the time to think carefully before buying anything you need to borrow money to buy. The cost increases more than the rate of inflation, if you also borrow to buy.

She says if you already have a lot of credit card debt, there’s a trick. Sometimes you can ask the credit card companies for a lower rate.

“There was a study done by Lending Tree and they told you they would often go down ten percent. All you have to do is ask,” Christine said.

It can’t hurt to try.