November 10, 2014
Beware: 2015 Prime Time for Credit Card Rates to Rise
You know how much I hate credit card debt, given the astronomical interest rates you are stuck paying. Though the average is around 14% I know plenty of you pay more than 20% interest. And next year could be even more expensive for anyone carrying credit card debt.
As you better know by now the interest you are charged on an unpaid credit card balance is tied to any movement in whatever benchmark index or rate the card issuer uses. Many credit cards use the Prime Rate as their benchmark. Since early 2009 the Prime Rate has been stuck at 3.25%.
That’s all about to change.
What you need to understand is that the Prime Rate is itself tied to the Federal Funds rate. That’s the interest rate controlled by the Federal Reserve, and if you’ve been following things lately the expectation is that for the first time since the financial crisis the Federal Reserve will raise the Federal Funds rate in 2015. Not a lot, but it will go up.
My friends, when that happens the Prime Rate will rise too, and that will trigger increases in the interest charged on credit card balances.
As part of its work checking on the health of our big banks post crisis, the Federal Reserve issues a periodic stress test of bank financial health. As part of that stress test the Fed has to make some interest rate and economic assumptions about what may happen in the future. In its most recent “baseline” scenario —that is, if things go as expected with no big shocks to the system-the Fed expects the Prime rate to rise to 4% by the end of 2015 and estimates it could reach 5.4% by the end of 2016. That guarantees the interest rate on your credit card debt is heading higher.
The time is always right to take control of your credit card debt. Now it is urgent as anyone with credit card debt in 2015 is likely to see their borrowing costs go up. Time to stand in your truth and get cracking on this important financial goal. My free Debt Eliminator will show you exactly what to do.