Higher Interest Rates Mean Additional Challenges to Paying Off Credit Card Debt
The good news is that inflation finally seems to be slowing down after a brutal year. Prices of most goods are still high enough to keep most families living paycheck to paycheck, even the ones with a six-figure annual household income, but the prices are finally starting to level off. The federal government has raised the federal funds interest rate 10 times in the past year, but the rate is likely to remain unchanged at least until the end of 2023. Meanwhile, credit card interest rates remain high, posing additional challenges for consumers hoping to pay more than just the minimum monthly payments. Meanwhile, being strategic about your spending and savings can help you free up the maximum share of your budget for paying down your credit card debt. To find out more about paying down your credit card debt in an era of high interest rates, you need a Philadelphia debt collection abuse lawyer.
What Is Going On With Credit Card Interest Rates?
Unless you have gone out of your way to avoid following the national news, then you have read about the federal government raising interest rates, and these news stories have appeared more times since the pandemic began than members of the reading public, with the exception of hardcore economics nerds, can keep track of. Not too long ago, the “interest rate” was zero. How is that possible, when you, along with almost all other consumers, were paying interest on credit cards and car loans and earning interest on savings? It is because the interest rate set by the government is the federal funds interest rate. It is the interest rate that banks charge each other when one bank lends money to another.
The interest rate that consumers pay is known as the prime rate, and it is usually about three percent higher than the federal funds interest rate. As of May 2023, the federal funds interest rate is 5.25 percent, and the prime rate is 8.25 percent. All of this is to say that the average annual percentage rate for existing credit card accounts is about 20 percent, while for new accounts it is about 22 percent.
How to Cope With High Interest Rates
With such high interest rates, it can be a struggle just to meet the minimum payments on your credit card debt, let alone pay down the principal. If you have had your credit card account for a long time, you might be able to get the credit card company to lower your interest rate. All you have to do is call and ask. The good news is that high interest rates for credit cards also mean high interest rates for savings. If you have any money in your budget to put into a savings account, you can later use the interest-augmented amount to pay down debts.
Contact Louis S. Schwartz About Credit Card Debt
A Philadelphia consumer law attorney can help you if you are struggling with credit card debts as a result of high consumer prices and high interest rates. Contact Louis S. Schwartz at CONSUMERLAWPA.com to set up a free, confidential consultation.