What Fed Interest Rate Hikes Mean for Your Credit Cards

If you’re carrying a large ongoing balance on a credit card, the payments are about to get more expensive.
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Written by Melissa Lambarena
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Edited by Erin Hurd
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The Federal Reserve has announced its sixth rate hike this year, increasing rates by three-quarters of a percentage point in an attempt to stabilize the U.S. economy.

For consumers, this means that “the market interest rates for credit cards, for auto loans, and for all the other loans are going to increase,” says Ligia Vado, senior economist at the Credit Union National Association.

If you pay your credit card bill off in full every month, the latest interest rate hike won’t impact your wallet. But, if you’re carrying a large ongoing balance on a credit card, the payments are about to get more expensive.

Here’s what you need to know.

What to expect for your credit cards

Whether you’re shopping for a new credit card or managing a current one, expect the Fed’s latest rate increase to hike up your credit card’s annual percentage rate.

Payments for ongoing balances will increase

With an ongoing balance, the minimum payment requirement on your credit card can increase since interest charges may factor into how it’s calculated. It may take one or two billing cycles to see a change in your statement, depending on the issuer.

Typically, an issuer can’t raise interest rates on new purchases without giving you a 45-day notice, but the variable APR on credit cards that is directly impacted by the Fed’s interest rate increase is an exception.

In fact, issuers aren't required to notify you at all. That means the credit card you're already carrying probably has a higher interest rate than it used to, and you may not have been aware.

New credit cards will have a higher APR

If you’re applying for a new credit card or have a 0% intro APR promotional offer that’s ending, you’ll likely start off with a higher baseline annual percentage rate.

If you're tempted to open a store credit card this holiday season, avoid carrying a balance, if possible. The sky-high interest rates can nudge you toward debt.

What you can do to minimize the impact

You can lessen the impact of Fed interest rate hikes by exploring your get-out-of-debt options for current credit cards or switching your spending to a credit card with a lower interest rate.

Explore your debt-payoff options

Credit card interest is traditionally expensive compared to some other loans, regardless of how much the Fed increases interest rates. It's critical to explore your get-out-of-debt options sooner than later.

Before you start though, understand how the debt came to be, says Jen Hemphill, an accredited financial counselor and host of the "Her Dinero Matters" podcast. It may prevent you from adding on more debt.

Once you identify the reasons you got into debt, and the necessary changes to your spending and budget, you can explore ways to pay off your credit card debt.

A balance transfer credit card

With good credit (a score of 690 or higher), you might qualify for a balance transfer credit card that facilitates moving high-interest debt from a different issuer onto it for a lower interest rate.

“You can see some at 0% for let’s say 12 months,” says Hemphill. “That can be an option that can save you money, but you really have to use it wisely and do some planning.”

Lakeycha Pinckney, a teacher from South Carolina, took that approach when she recently found herself with a balance of around $4,500. When she got a balance transfer offer from her current credit card issuer, she weighed the cost of the fee that is charged on the amount transferred.

The ideal balance transfer card should have no annual fee, a balance transfer fee of 3% or less and a lengthy interest-free window to pay down debt.

“I sat down and I did the math,” says Pinckney, who documents her financial journey on her YouTube channel, Keycha Budgets. “In the long run, it’s cheaper to pay the fees than to pay all of the interest.”

A fixed-rate debt consolidation loan

For debt across multiple credit cards, a consolidation loan may combine your balances into one fixed-rate loan payment, making it easier to manage. Use the money to pay off balances and pay back the loan in installments over a set term. You may qualify for a loan with bad or fair credit (roughly a score of 689 or lower), but lower rates are typically reserved for higher credit scores. Consider the cost of interest and fees to determine if it's worth it.

A debt management plan

If your debt is going to take three to five years to pay off, consider meeting with a counselor at a nonprofit credit counseling agency to determine if you qualify for a debt management plan. For a fee, these plans can potentially lower interest rates and waive fees, allowing you to make more progress on debt. If your options are limited due to less-than-ideal credit or other reasons, it may be worth paying the fee if it saves you money in interest over the long term.

Seek lower interest rates

If you’re planning to pay off a big-ticket purchase over time, save on interest payments with a 0% introductory APR offer for purchases. For ongoing balances on existing credit cards, consider switching your spending to a credit card with a lower interest rate — even if it means not earning rewards. The potential savings on interest will far outweigh what you can earn in ongoing rewards. And note that the average APR charged for credit card accounts that incurred interest was 22.76% as of May 2024, according to Federal Reserve data.

Credit unions tend to have lower interest rates on credit cards and debt consolidation loans compared to banks, so you might also look there. In September 2022, the national average rate for a “classic” credit card was 11.64% at credit unions and 13.05% at banks, according to data extracted by the National Credit Union Administration. Federal law also caps the interest rate on loans and credit cards at 18% at federally chartered credit unions. This cap is not impacted by the Fed’s interest rate hikes, according to Vado.

“We’re a nonprofit organization — we do not have stockholders,” says Vado. “We are owned by our members, so that money that we don’t deliver in profits, we redistribute it by charging lower interest rates on loans and paying higher yields on deposits and savings accounts.”

Membership is typically required to join a credit union, but you might qualify based on where you live or work. If not, some credit unions allow joining with a $5 donation to a partner organization.

Why a debt-payoff strategy is critical now

It’s important to quickly start chipping away at debt to safeguard against the unknown. By having a plan in place, you can potentially minimize the impact of future Fed interest rate hikes, holiday spending and a potential recession.

Lenders, including credit unions, are also known to tighten lending standards if the economy becomes unstable, so debt-payoff options may become more difficult to secure if you wait.

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