Credit Card Interest Rates. 3 Strategies to Save with your Cards and Loans before Interest Rises. Get ready so you don’t spend extra money with the pending increase in bank interest by the government.
Interest has remained low in recent years (since 2006), partly manipulated by the Federal Reserve to stimulate the economy. But, this situation is about to change since the economy has improved and there are not many reasons to keep them so low in the long term. If you have credit card accounts and loans, consider these actions before interest rates rise.
In the coming months, according to speculation in the financial market, the Federal Reserve will gradually increase the interest rate that banks charge each other, the prime rate or Prime Rate.
Generally, when this rate increases banks and credit cards also increase consumer interest. Although the increase usually starts with .25 percent consecutively, if you have high loan balances, the interest you are going to pay will be higher.
Here are 3 ideas to manage your credit cards and other debts and avoid paying extra money in interest.
How does it work Card Interest Rates
- The preferential interest rate is set by the Federal Reserve System.
- This is the rate that banks charge each other (Prime rate)
- When this rate goes up, credit consumers pay more for interest on their debts such as credit cards, mortgages and loans.
Credit card users with high balances
Reduce the amount of debts – By raising the interest rate for the Federal Reserve (the preferential rate), the cards will also increase yours. The interests of the cards are variable and are tied to the preferential rate imposed by the Reserve. Depending on the amount of your debts on the cards, after the increase you can pay more money in interest and not in the principal that reduces the debt. This will keep you more tied to debts for longer. Although sometimes it is not easy to reduce them, if you lower the debts little by little you will benefit in the long term.
Users of several cards with high interests
Option 1 – Use a loan to consolidate your high interest card debts with a lower rate loan. If you can use this option you will save money on monthly interest payments. It is important to read the credit agreement well and find out all the expenses and fees to be paid before consolidating the card accounts.
Option 2 – Consolidate under a single card – If you have good credit you may be able to obtain a card with a low interest rate and not be charged for transferring your other accounts and consolidating them. Like a consolidation loan, it is important to read the contract and discover all the expenses and fees associated with such a transfer.
Those who have a mortgage on their homes
If you have a mortgage and have not yet made a re-financing, take advantage before the preferential interest rate or Prime Rate increases. This is a good option if you have a 30-year fixed mortgage with a higher rate than the average in the market. Also if you have a mortgage with variable interest it is better to set the rate now while these are low.
If you do not have the option of using any of these strategies before interest increases, do not worry. Interest increases gradually, generally in increments of .25 percent. Meanwhile concentrate on reducing your debts, in the end this will help you use less of your money to pay interest.