Wonder how the Federal Reserve raising rates affects you? It means the cost of borrowing money is going to get more expensive. A hike in the rate by the Federal Reserve results in an increase in the prime rate. The prime rate influences the rate that credit unions and banks extend to credit-worthy borrowers. The prime rate is also used to determine credit card rates, which means rising rates can make credit card debt a lot more expensive. Here are three ways to protect yourself from rising credit card interest rates.
1 Transfer high credit card balances to a low-rate balance transfer credit card
If you have a good credit score and steady income, you may be eligible for a low-rate balance transfer credit card. A balance transfer credit card enables you to transfer balances from a high-rate card to a lower rate card and save on interest for a specified period of time. For example, Choice One Community Credit Union is offering applicants a VISA balance transfer credit card featuring a 0% APR* on balance transfers for six months. Plus, there are no balance transfer or annual card fees and rates are fixed after the special introductory rate expires. This offer is valid for balances transferred from another institution only.
When shopping lenders for a low-rate balance transfer card to meet your needs, be sure to consider fees. Most cards charge a balance transfer fee, which may outweigh a lower rate. That’s what makes Choice One’s balance transfer card so special – a 0% APR* and no fees. When transferring credit card balances to save on interest, estimate how long it will take you to pay the balance using a 0% rate offer or another low rate offer. It’s important to keep in mind that once the promotional period ends the regular APR will become effective and you will begin paying interest on the remaining balance.
2 Establish a budget for debt payment
Establishing and sticking to a budget for debt repayment is an important step toward protecting yourself from rising credit card interest rates. Determine how much money you can afford to allocate to repaying debt each month. A strong focus on debt repayment may mean the need to reduce your expenses to allot more monthly funds for debt payment until you have your debt under control. If your budget lacks wiggle room to focus on debt, you may want to consider a part-time job or a side gig as an extra source of income to help with credit card debt.
3 Focus on paying down debt
Whether you choose to transfer the balances from high-rate credit cards to a lower rate card or possibly consolidate the debt with another loan, you still need to focus on paying down the balance. It’s the only way to protect yourself from rising credit card interest rates. As mentioned above in budgeting, any disposable income should go towards paying down debt to save you from paying on interest.
There are several different methods that strategists recommend for paying down debt, depending on your needs. With interest rates rising, the best method may be the debt avalanche method. When using the debt avalanche method, you focus payments on the highest interest debt first, while making the minimum payments on the rest of your accounts.
Once you pay off the highest balance, you then divert the majority of the money towards the debt with the next-highest interest rate. Move down the line paying the highest rate to the lowest until all of your credit cards have been paid off. This can help you save significantly on interest, which is an important goal. You may even want to switch from using your credit card to your debit to avoid adding on more debt while you’re paying off existing debt.
Compare lenders when consolidating credit card debt
To protect yourself from rising credit card interest rates, it’s important to compare lenders when searching for a low-rate balance transfer credit card. As mentioned above, Choice One Community Credit Union not only features a 0% APR* on balance transfers for six months, but you will also benefit from no balance transfer or annual credit card fees, as well as fixed low rates after the special introductory period expires. Tap to learn more about Choice One’s VISA balance transfer credit cards.
Or read our recent blog post on “6 Tips for Managing Rising Costs”
*0% VISA Balance Transfer Rate is valid for 6 billing cycles from the date of transfer. Rate returns to the current rate at that time. Choice One’s current Platinum Visa Credit Card Rate is 8.90% APR and Classic Visa Card is 13.50% APR with No Balance Transfer or Annual Fee. Balance Transfer offer is good on any new or existing Choice One Platinum or Classic Credit Card. 0% balance transfer rate is for balances transferred from another institution only. Transfers may not exceed the credit line a member is approved for.