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Nashville Office 615-256-8300
Cookeville Office 931-400-2218

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How interest rate hikes impact credit card debt

On Behalf of | Jun 21, 2017 | Chapter 13 |

Tennessee residents may have heard about the Federal Reserve’s decision to raise the federal funds rate to between 1 and 1.25 percent. This is the second time that rates have been raised this year, and a third hike could come later in 2017. For those with mortgages or home equity loans with variable rates, it may be a good idea to pay them off faster or refinance to a fixed-rate loan.

Interest rates on auto loans may also go up over time, but a competitive market may keep rates steady for the time being. The average credit card interest rate is 15.07 percent. A person with a $5,000 credit card balance will pay an extra $175 in interest every time the prime rate is raised a quarter point. If the Fed raises rates three times a year, that could equal $525 in additional interest per year.

As the interest rate on a home equity loan is roughly 5 percent, three rate hikes in a year may increase a borrower’s monthly payment by about $18. Those who have fixed-rate mortgages may have little to worry about as a multitude of factors go into determining the interest rate a lender charges. As a general rule, current rates already reflect the latest decision to increase rates.

Filing for Chapter 13 bankruptcy may help a debtor overcome his or her credit card debt problem. A reorganization bankruptcy allows an individual to repay balances over the course of three or five years according to a plan approved by a bankruptcy court. Filing for bankruptcy may also put an end to creditor collection calls or put a stop to other actions such as foreclosure or repossession. An attorney can further explain the benefits and process of seeking bankruptcy protection.

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