In this post I would like to examine how news that the Federal Reserve is planning on raising interest rates three to four times in 2022 effects consumers with credit card debt. The first and most obvious impact is that it will cost more money to carry credit card debt as interest rates rise. Why? Because nearly all credit cards come with variable rates. This means that the interest rate you pay on your credit card debt is directly tied to Fed's benchmark rate. As the interest rates rises, the prime rate does too, with credit card rates rising with them. You should expect your credit card bill to show that increase within one to two billing cycles.
Currently, the average consumer carries a credit card balance of $5,525. Even though people have no idea how much their credit card interest rate actually is, the data shows that the average annual interest rate paid by the average consumer is 16%. Once interest rates are raised people should expect the average credit card debt interest rate to rise to above 17% by the end of the year. This will put people back at pre-pandemic levels of debt and will cost them significantly more money every month to pay off their credit card debt.
For example, if you carry $6,000 of credit card debt and make minimum monthly payments only it will take you more than 16 years to pay off that debt. That fact alone is outrageous. But, if interest rates rise by less than a percentage point that will could cost you another $300 to $400 in interest payments.
Some consumers will be able to wiggle out of this debt slowly by finding 0% interest credit cards that will allow balance transfers and no interest payoffs over the short term. But the reality is for most consumers carrying credit card debt, the costs of monthly payments is going to get higher and higher. With the costs of other goods also rising it is going to put a lot of pressure on consumers who will find themselves short on money. In these situations discussing a Chapter 7 or Chapter 13 bankruptcy options with Florida Consumer Lawyers is necessary. Why struggle for 16 years paying credit card minimum payments when debts can be wiped out over night by a Chapter 7 bankruptcy? For qualifying consumers this is something to strongly consider. For those with more money in their budget but too much debt to service a Chapter 13 bankruptcy could provide a way to clear up some of your out going budget and dedicate that money to more important areas, such as home and car payments.
If you are feeling the strain of credit card debt then call us today. Let's start a conversation to help you make the best decision possible for you, your family, and your future.