Here's How Much a Fed Rate Hike Would Affect Credit Card Debt Over Time
The Federal Reserve
is meeting today to decide whether or not it will finally raise rates. If it does, it could directly affect short-term loan rates: namely, your
Even if the Fed does raise the federal funds rate today, it's only expected to go up in 0.25% increments, so it's not a change that'll happen overnight. Still, many experts say a rate hike will
Credit cards are the standout category where we can expect interest rates to rise, but we estimate the impact will be relatively small. NerdWallet has done the math and found that the average indebted American household can expect to spend an additional $125 in credit card interest over the next five years. While that's still real money, this shouldn't significantly impact your financial standing.
Of course, that's for the average household, so it might be a different story if you have quite a bit of
NerdWallet quantified the change in the below infographic, which shows how much more the average debtor can expect to pay with a 0.25% rate increase. The graphic assumes interest based on a credit card balance of $15,355, the average in the U.S . They also assume starting with an 18% variable APR.
Of course, the Fed is likely to raise rates again over the course of this projected debt payoff. In fact, they're expected to raise it a full percentage over the next several years. But NerdWallet's calculations are simply meant to quantify the change, a quarter of a percent at a time.
Check out the numbers below, and the one you'll want to pay attention to is "increase due to Fed hike," which shows just how much more you'll pay over time.