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Credit cards should become more expensive to use

Credit cards should become more expensive to use

BALTIMORE, Md. — Credit card bills are about to get more expensive.

People who have balances on their credit cards can expect to see higher interest charges on their next statement.

The Federal Reserve plans to raise target interest rates by another half point in May after raising them by a quarter point on March 16.

Inflation hit a 40-year high last month and as painful as it is for consumer budgets, Federal Reserve officials see raising interest rates as a way to stop inflation. inflation or at least slow it down.

As inflation rises, not only do people have to pay more for the goods and services they buy, but now they will have to pay more for all the things they bought with a credit card.

Inflation rose to 7.9% in February. The US economy hasn’t seen numbers like this since the 1980s, when inflation hit 8.4%.

The Federal Reserve is about to go back to the future to find a solution to control inflation by raising its interest rates.

Dr. Tom Smythe, professor of finance at Florida Gulf Coast University, said “we need to slow down inflation.”

It’s like dominoes, a higher Fed rate means a higher prime rate, which increases the variable rate on a credit card and a higher payment due on the next credit card bill.

“It’s not going to hit the mortgage and auto market hard right now, it will have more of an impact by the end of the year after a number of rate hikes,” Smythe said.

The Federal Reserve has already raised rates by a quarter point this month.

For example, a person with a credit card, carrying a balance of $5,000 with an annual percentage rate of 15%, would have a monthly payment of approximately $201 to pay it off in 30 months. paying off the debt would cost them $945 in interest.

If the APR increases by a quarter point, as the Federal Reserve did last week, their monthly payment goes up to $202, but the total interest paid over 30 months is $961.

If the Fed increases it and adds a half point in May, bringing the APR to 15.75%, the monthly payment rises to $203, and the total to pay it off in 30 months is now $994.

That’s why financial experts advise people to start tackling those credit card debts now.

According to the C-Net website, credit cardholders can try the snowball method by paying off their smallest debt first.

Regardless of the interest rate on their card, a cardholder would continue to pay the smaller balances until they progress to paying off the card with the higher balance.

Experts also recommend the avalanche method.

Cardholders would attack the card or debt with the highest interest rate first. Then they would go down to the next highest rate, and so on, until the balance was paid off.

These numbers are only examples as individual credit card rates and rules vary.

Financial experts are worried about the Fed’s further rate hike.

Even a small increase in interest rates can affect the amount consumers pay in the long run. Additional costs can add up for consumers with multiple credit cards and accounts.

Cardholders can combat rising interest rates by calling the bank associated with their credit card bank and asking if they will lower their interest rate.

Consumers can also try applying for a zero rate card. If they get the card, they can transfer their high interest balances to the new card.

Another suggestion is to stop using a credit card and use a debit card instead.