It’s the most expensive time to maintain credit card balances, and new evidence that the fight against inflation is taking its toll on Americans’ finances.
The average credit card rate across the country this week reached 17.96%, according to . Bankrate.combreaking the previous record of 17.87% in April 2019 and the highest since the Federal Reserve launched its latest method of tracking rates in 1996.
Nicole Midendorf, an adviser to Prosperwell Financial in Minnetonka, said she advises people with credit card debt to put the card in a glass of water and keep it in the freezer until it’s paid off. Told.
“You can get $4,000 in, but you can’t get $4,100 out,” says Middendorf. “If I spend more money at the grocery store, I have to give something, or I’ll end up doing a part-time job.”
The Federal Reserve has hiked interest rates at the fastest pace in decades since March to curb inflation, which topped 9% earlier this year. Central banks have long targeted inflation around 2%.
According to Ted Rothman, senior industry analyst at Bankrate.com, almost all credit cards come with a floating rate that tracks a prime rate that is typically 3 percent higher than the Federal Funds rate set by the Federal Reserve (Fed). there is.
“So there is a direct pass-through from the Fed’s actions to credit cardholders,” he said. is added to the prime rate.
If you start the year with a $5,000 balance on a credit card that charges 16%, the minimum payment will put you in debt for 184 months and accrue $5,406 in interest, says Rossman.
“That was bad enough, but at 18.25%, these minimum payments drag on for 189 months, accumulating $6,241 in interest,” he said. “That’s an increase of $835.”
Consumers are also seeing mortgage rates starting to rise again after taking a moratorium earlier this summer. U.S. average long-term mortgage rates hit a two-month high this week rose.
Mortgage buyer Freddie Mac reported Thursday that 30-year rates rose to 5.66% from last week’s 5.55%. A year ago, this rate he was 2.87%.
These high interest rates are cooling the housing sector as potential home buyers are pushed out of the market as they can add hundreds of dollars to their monthly mortgage payments. Sales of existing homes in the United States have fallen for the sixth straight month, according to the National Association of Realtors.
Mortgage rates don’t necessarily mirror Fed rate movements, but they do tend to track 10-year Treasury yields. Recently, accelerating inflation and economic growth in the United States caused her 10-year Treasury bond yield in the United States to surge to his 3.24%.
For many consumers, it’s easier to cut credit card costs than mortgage costs. According to Middendorf, the main reasons people have credit card debt are overspending and sudden crises like medical emergencies and unemployment.
She tells clients to pay off credit card debt with cash on hand and rebuild an emergency fund for 6-12 months of expenses in an insured savings account.
If that’s not possible, Middendorf suggests temporarily cutting any costs, such as fitness memberships or streaming services, and contacting credit card companies to ask for lower interest rates to get out of credit card debt. is recommended.
In the event of a medical emergency, ask the hospital to come up with a payment plan. If you lose your job, keep your expenses to a minimum and pay off your debts as best you can.
What about using a credit card for rewards?
“As long as you’re charging something and you’re paying the full amount each month, you’ll be fine,” Middendorf said.