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Credit Card Interest Rates are on the Rise…
Four out of every five cards issued today come with a variable rate. Most also come with a Universal Default provision (meaning that if you are late on any payment, it doesn’t have to be to that particular creditor, your interest rate can increase to as much as 30%).
The variable interest rate has been on the rise and is continuing to increase. The rate is tied to the Federal Reserve. As the Federal Reserve raises short-term rates, the credit card company will pass those higher rates onto the consumer. For example: from February 2005 through January 2006, the Federal Reserve raised interest rates by two percentage points. In turn, variable rates on credit cards rose to nearly 3 percentage points (from 12.84% to 15.75%).
Since the Fed is expected to raise short term rates again at the end of the month, you can expect your credit card rates to go up as well. Most economists predict that the short term rate may end up capping at 9% by the end of the year.
In addition to these rate hikes, credit card companies have also implemented a new minimum payment policy. Those minimum payment rates went from 2% to 4% this year.
The increase in minimum payments along with the increase in interest rates, are sure to put the financial squeeze on most consumers. Higher prices at the pump isn’t helping much and let’s not forget about all of those adjustable rate mortgages that are now coming on line with the new rates hikes. Are you feeling the squeeze yet?
So what can you do about it? You can contact your current card holder(s) and ask them to switch you to a fixed rate that is competitive. If not, maybe you want to take your business elsewhere.
If you have a decent FICO score (somewhere around 720 or higher) you could trade your variable rate credit card for one that is fixed. You can check out www.creditcard.com to see current rates.
Currently, you should be able to get a card with a 7.9% fixed rate. You can expect a 3% transfer fee (there used to be a flat fee of $75 for a balance transfer, now the trend is to charge about 3%) so, if you pay off your credit card each month, it may not be wise. But, if you make monthly payments like the vast majority of us, then reducing your overall interest rate from 15% to 8% can’t hurt.
If you are starting to feel the squeeze, start looking for professional help now. It never hurts to get a professional opinion.
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