Editor’s Note: This is excerpted from a story that originally ran on March 22, 2023.
The Federal Reserve on Wednesday raised its key interest rate for the ninth time since last March.
Each time the Fed raises the rate, lending rates that banks charge their customers tend to follow. That means consumer debt — especially variable-rate credit card debt — will get more expensive.
“[T]he average credit card rate is now at a record high above 20%,” said Greg McBride, chief financial analyst for Bankrate.com. That’s well above the 16.3% average at the start of 2022.
If you pay off your bill in full every month that is not a concern for you. But if you carry a balance, and especially if you only pay the minimum amount due, you will be shelling out more dollars every month just for interest and it will take you longer to pay off what you owe.
Expect to see your interest rate go up within a few statements.
Your best bet is to try to find a good balance-transfer card with an initial 0% rate and make a plan to pay off what you owe in the coming months before a high rate kicks in.
“Turbocharge your debt repayment efforts with a 0% balance transfer offer, some lasting as long as 21 months. This insulates you from further rate hikes and gives you a runway to get the debt paid off once and for all,” McBride said.
But first find out what, if any, fees you will have to pay (such as a balance-transfer fee or annual fee), and what the penalties will be for late or missed payments during the zero-rate period. The best strategy is always to pay off as much of your existing balance as possible — on time every month — before the zero-rate period ends. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before, if rates continue to rise.
If you don’t transfer to a zero-rate balance card, another option might be to get a relatively low fixed-rate personal loan.
The average personal loan rate was 10.82% as of March 22, according to Bankrate. But the best rate you can get will depend on your income, credit score and debt-to-income ratio.
Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.