The Federal Reserve has held interest rates steady for the eighth time, meaning that credit card APRs are likely to remain high. This can lead to increased credit card delinquencies and financial distress for some households. In the first quarter of 2024, credit card delinquencies rose to 6.86% compared to 4.57% in the first quarter of 2023. Missing credit card payments can result in late fees, higher interest rates, and damage to your credit score. Despite these challenges, there are steps that can be taken to manage credit card debt.
Paying at least the minimum monthly payment on time is crucial to avoid late fees and damage to your credit score. It is also important to pay off or at least down existing credit card debt. Strategies such as the snowball method or avalanche method can help in paying down multiple balances. Balance transfer cards with a 0% APR offer can be an option to save money on interest charges. Personal loans may also be considered for more time to pay down the debt.
It is advised to focus on paying down credit card debt rather than earning rewards or cash back through credit card spending. Additional sources of income such as a side hustle or selling unused items can help in paying off credit card debt faster. Switching to cash or a debit card instead of using a credit card for purchases can help avoid overspending and incurring more debt. Leveraging credit with an intro 0% credit card can also be beneficial for those who do not carry a balance.
The Federal Reserve’s decision to hold interest rates steady will likely have minimal impact on credit card APRs. The Fed’s monetary policy affects credit card APRs indirectly through changes in the federal funds rate. Credit card issuers adjust APRs based on the prime rate, which is derived from the federal funds rate. Changes in the Feds benchmark interest rates can result in adjustments to credit card APRs within a billing cycle or two. It is important to be aware of common credit card fees and strategies for consolidating credit card debt to manage finances effectively.
