Editor’s Note: This is excerpted from a story that originally ran on March 22, 2023.
Banking has been top of mind for many people in the wake of some surprise bank failures and moves by US regulators to boost confidence in the financial system.
Each time the Fed raises the rate, the lending rates that banks charge their customers tend to follow. That means consumer debt — especially variable-rate credit card debt — will get more expensive.
“Returns on savings accounts and CDs are the best in 15 years,” said Greg McBride, chief financial analyst for Bankrate.com.
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.
“Credit card rates are at record highs and still rising. 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 10.71% as of March 8, 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.
Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.