Interest rates are at a 22-year high. So what does this mean for you? The Federal Reserve raised them in an effort to address inflation, but it will translate into higher costs if you carry debt like car loans and mortgages. On the other hand, if you have savings and investment accounts, you may be seeing an uptick in the amount of interest you earn.
But what about credit card debt? Understanding credit card interest and important credit card terms can help you navigate the current economic climate with minimal damage on your wallet. Here’s what you need to know.
How Credit Card Interest Works
Credit card interest is the fee charged by your card issuer when you carry a balance from month to month. This rate is typically expressed as an annual percentage rate (APR). Credit card APRs vary depending on the card and your creditworthiness. If you have a good credit score, you might qualify for a lower APR, while a lower score could result in a higher APR.
The Link Between Credit Cards and the Federal Reserve Rates
Here’s the link to the Federal Reserve: When the Federal Reserve raises or lowers its benchmark interest rates, it directly influences credit card APRs. If the Fed increases rates, credit card APRs tend to follow suit, making borrowing more expensive. Conversely, when the Fed lowers rates, you might see some relief in credit card interest charges. Keep in mind that credit card interest can accumulate quickly, so it’s wise to pay off your balances promptly to avoid unnecessary costs.
Paying Less Credit Card Interest
To pay less interest, aim to pay your credit card balance in full each month. This way, you won’t accrue any interest on your purchases. If you can’t pay the full balance, try to pay more than the minimum amount due. The higher your monthly payment, the less interest you’ll pay over time. Additionally, consider transferring balances to a card with a lower APR, especially if you have multiple cards with high rates.
Keeping an eye on what’s going on with the economy and the Federal Reserve interest rates can help you make informed decisions when it comes to things like your credit card debt or investments. Interest rates are high right now, and that can mean both good or bad things depending on where you stand financially.
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