The Fed's interest rate increases mean credit card debt is costing more

Posted at 5:57 PM, Nov 02, 2022
and last updated 2022-11-02 17:57:57-04

ROYAL OAK, Mich. (WXYZ) — The Federal Reserve raised interest rates for the fourth time in a row by another 0.75 percent on Wednesday. It is aiming to increase the cost of borrowing so people spend less, decreasing demand.

It is the tool the Fed has to lower prices. Many hope it works.

“I feel like every time I go grocery shopping I am spending more,” said Jason Ross, a Michigan State University College of Osteopathic Medicine Student.

For Jason Ross, the Federal Reserve action feels like a lose-lose scenario. Not only is he concerned about spending, but as a fourth year medical student he is concerned about debt he has accumulated.

“With the rates going up and using my loan money to pay off my credit card debts its going to be a huge mess,” said Ross.

He considers his credit card and student loan debt a strategic investment, making his career possible, but the as the Federal Reserve raises rates, the cost of that investment increases with those rates. The reason? Banks pass that increase in borrowing costs on to consumers with student loans, home loans and credit cards.

Credit card rates are up from an average of about 16 % in February to about 19% now. That means every day on a balance of $1000, people went from paying about $160 in interest to about $190 in interest each year if they don’t let that balance increase.

“Don’t get in it, but if you are in it you need a strategy to pay it off,” said Paula Christine, a money coach.

Christine says now is the time to think carefully before you buy anything you need to borrow money to purchase. The cost is increasing more than at the rate of inflation, if you are also borrowing to buy.

She says if you have a lot of credit card debt already, there is a trick. Sometimes you can ask the credit card companies for a lower rate.

“There was a study done by Lending Tree and they said you they will often go ten percent down. All you have to do is ask,” said Christine.

It can’t hurt to try.