How Your Credit Card APR Gets Impacted by Fed Rate Hikes

In March 2022, the Federal Reserve raised interest rates for the first time since December 2018. The Fed, seeking to counter the historically high inflation, approved a 0.50 percentage point interest rate increase and intends to raise rates about six more times in 2022.

For millions of credit card holders, this means they could have higher bills in the upcoming months. The interest rates for credit card interest are partially based on banks’ prime rates, which depend upon the Fed’s rates.

The Associated Press reports that when this happens, people might end up paying higher interest rates for their outstanding balances. It could affect interest rates in one to two billing cycles, so it could go into effect as early as April or May.

Although a quarter percentage point hike isn’t that sizable, credit cards have notoriously high-interest rates. Any additional increase can make that outstanding balance even higher, so the best bet for credit card holders is to pay down high-interest credit card debt.

If you’re struggling to pay off outstanding credit card debt, consider transferring your balance to another credit card that offers no interest on balance transfers for a set time. During that 0% APR period, pay down your debt without accruing costly interest charges.

Sources: Gobankingrates.com, Nytimes.com, CNBC.com