Editors Note: (This is excerpted from a story that originally aired on March 22, 2023.)
New York (CNN) The Federal Reserve on Wednesday raised its main interest rate for the ninth time since last March.
Whenever the Fed raises interest rates, the interest rates that banks charge their customers tend to follow suit. That means consumer debt — especially variable-rate credit card debt — will become more expensive.
“[T]Average credit card interest rates are now hitting record highs above 20%,” said Greg McBride, chief financial analyst at Bankrate.com. That’s well above the 16.3% average at the start of 2022.
If you pay off your bills every month, that’s none of your business. But if you have a balance, and especially if you’re only paying the minimum amount due, you’ll be spending more dollars each month just in interest and it’ll take you longer to pay off your debt.
Expect to see your interest rate go up in 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 your debt in the coming months before the high rates kick in.
“Boost your debt service efforts with 0% balance transfer offers, some lasting as long as 21 months. This protects you from further interest rate hikes and gives you a runway to pay off debt once and for all,” says McBride.
But first find out what, if any, fees you’ll have to pay (such as balance transfer fees or annual fees), and what penalties there 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 each month — before the zero rate period ends. If not, the remaining balance will be subject to a new interest rate which can be higher than before, if interest rates continue to increase.
If you don’t transfer to a balance card without interest rates, another option might be to get a personal loan with a relatively low fixed interest rate.
The average personal loan rate was 10.82% as of March 22, according to Bankrate. But the best rate you can get depends on your income, credit score, and debt-to-income ratio.
Bankrate advice: To get the best deal, ask for quotes from several lenders before filling out a loan application.