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Credit card payments could rise after Fed rate hike

On Behalf of | Jul 7, 2017 | Bankruptcy |

Borrowers in Kentucky and across the United States are likely to see their payments rise following interest rate hikes announced by the Federal Reserve on June 14. Credit cards, home equity loans and adjustable rate mortgages all base their variable interest rates on the Federal Reserve benchmark. Fixed rate loans, on the other hand, remain the same regardless of the Fed’s rates.

The Federal Reserve’s federal funds rate, used by banks to charge each other for quick overnight loans, has been rock-bottom since 2008 and the mortgage, financial and banking crisis. Over the past two years, it has crept up to 1.25 percent and further hikes are expected in 2017 and beyond

. While few consumers ever interact directly with the Federal Reserve interest rate, this figure resonates throughout the lending industry and is reflected in interest rates for consumer debt like credit cards or home equity lines of credit. The June 14 hike could add around $175 in total interest payments annually for someone carrying a credit card balance of around $5,000 at the average interest rate of slightly over 15 percent. As the Federal Reserve continues rate hikes, that amount will only increase in coming years. Other types of borrowers, like people who use home equity lines of credit or adjustable rate mortgages, are also likely to be affected. Ongoing rate hikes in 2017 could raise the monthly payment on a $200,000 mortgage by $84.

As monthly payments get higher, it can become more and more difficult for borrowers to meet their monthly obligations. This is especially true for borrowers who are already struggling to make their minimum payments and carry a high revolving balance on their credit cards. People with multiple credit cards or higher interest rates, including rates that have been hiked due to lower credit scores or late payments, could be hit particularly hard by compounding increased interest rates. Many of them might want to meet with a bankruptcy attorney to see what forms of debt relief might be available.


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