Interest rates going up increases credit card debt for some

Published: September 21, 2022 6:17 PM EDT
Updated: September 21, 2022 6:20 PM EDT

The Federal Reserve is continuing to slow the rising cost of everything.

But by doing that, the key interest rate goes up.

This is the fifth rate hike this year.

Walmart isn’t Stacy Simpson’s first choice when it comes to grocery shopping for her family but she says it’s where she’ll get more bang for her buck, putting food on the table.

“As prices started to go up we definitely wanted to be more conscious about making our dollar go further,” Simpson said.

Occasionally, she pays by credit card.

“We try not to but it’s definitely from time to time becomes a necessity again to make sure that we’re putting food on the table and pay our bills,” Simpson said.

This is the third time this summer the Federal Reserve has raised interest rates three-quarters of a percent.

FGCU economist Victor Claar said this shows they are serious about getting inflation.

“Credit cards right now are a really really really expensive way to finance your purchases,” Claar said.

Sixty percent of credit card holders have been carrying balances on their cards for at least a year, according to a new report from creditcards.com. With the rising interest rate you’re going to have to pay even more on that balance.

“The rate of interest on credit cards is about as high as its been since the mid-1990s,” Claar said.

CNBC reports the average credit card APR could reach closer to 19%, according to Financial Services site bankrate.com.

In that case, a balance of $5,000 with an APR of 19%, you’d pay an additional $1,197 in interest costs compared to an APR of 16% from last March.

“We try, but from time to time, it doesn’t happen, but ideally so you don’t have that interest piling up,” Simpson said.

For Simpson, sometimes getting what she needs now means worrying about the cost a little later.

You can try to negotiate with your credit card for a lower rate, but we haven’t heard of many people who have had success with that lately and be prepared for the Federal Reserve to raise rates again later this year.