The following is a guest post by Matt Schulz, chief industry analyst at CompareCards.
When the Fed raises rates, almost every credit card APR in America goes up by the same amount within a billing cycle or two. For example, if you have a card with an APR of 17% and the Fed raises its rates by a quarter of a percentage point, your issuer will lift your APR to 17.25% shortly after that. That’s because most credit cards in the U.S. are variable-rate cards, meaning their rates rise or fall based in part on the Federal Reserve’s rates.
Typically, banks must give you 45 days’ notice to increase your credit card’s APR. That’s because the Credit Card Act of 2009 restricted banks’ ability to raise rates in many cases. There are a few exceptions to that rule, however, and one of them is a rate increase from the Federal Reserve. Banks can pass that increase on to consumers immediately.
The good news
The good news for consumers is the Federal Reserve tends to increase its rates slowly. Each increase is usually 0.25%. For most people with credit card debt, that increase doesn’t amount to more than a few dollars of extra interest each time. However, when you add up all eight of the rate increases since 2015, it becomes a big deal. And given that the Fed seems likely to keep raising rates, that credit card debt is only going to get more and more expensive.
Here are five secrets for managing your credit cards when rates are rising.
1. Pay just a little bit more next month on your credit card bill
Job No. 1 for anyone with a credit card is to pay your bill off in full each month. That’s not always possible, though, so if you’re carrying a balance, try and pay just a little more this month. If you already pay $100, try and pay $110. If you pay $50, pay $55. Even that little bit will make a difference.
2. Consider a 0% balance transfer credit card
Every time the Fed raises rates, we see a gradual chipping away at balance transfer card offers. They’re still offering zero percent, but the details around it change. Perhaps the length of the offer gets shorter. Maybe the fee associated with it goes up slightly. Perhaps some other detail changes. Now’s the time to shop for a balance transfer card at sites like CompareCards.com. They’re not going away entirely, but if you wait much longer, the offers may not be as appealing as they are now.
3. Set up a budget
If you don’t have a budget, a Fed rate hike is a good excuse to start one. The truth is that you can’t make a meaningful plan to attack your credit card debt unless you know exactly how much money you bring in and how much you spend each month. Once you know that, you can figure out if you need to cut spending, raise more money, or likely a little bit of both.
4. Check your credit report
Far too few Americans regularly check their credit report, and it could be costing them money. There are more errors on credit reports than people would believe, and it’s possible one of those errors is artificially deflating your credit score. Check your report to make sure everything is in order, and if it isn’t, speak up. Get it changed. And even if nothing is wrong, it is still time well spent because your report can give you a complete view of your financial situation all in one place
If you’ve had your card for a long time and have been a good customer, call your card issuer and ask them to reduce your interest rate. You’d be stunned how often that works. The marketplace is so competitive that issuers are quite likely to work with you, especially if you have good credit. It’s like your parents used to say: It never hurts to ask. The worst thing that can happen is they say no. But if they say yes, great things can happen. And your best move is to come with ammunition in the form of offers from sites like CompareCards.com or from snail mail. Ask your issuer if they can match the offer you received – and don’t be afraid to walk away if they won’t.
Matt Schulz is Chief Industry Analyst at CompareCards, which provides tools, and educational resources that help people do everything from making credit card comparisons to managing their credit health. For more information, visit comparecards.com.
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