Dealing with Credit Card Debt in a Rising Rate Environment Dealing With Credit Card Debt In A Rising Rate Environment The Federal Reserve raised the fed funds rate a quarter point to 1.5 percent on December 13, 2017, marking it the third increase in 2017 and the fifth increase since the market crashed in 2008-2009. The intention behind the original cuts to the federal funds rate after the market crashed was to increase liquidity, boost employment, and spark inflation. The Federal Reserves has come too close to what they set out to accomplish within the American economy, so now they have begun raising rates. While the economy hasn’t reached the feds stated target of 2 percent of inflation yet, we are pretty close and it can be too dangerous to wait too long to raise rates because if inflation takes off it is hard to get a handle on it. The Federal Reserves insinuated there will be two to three more rate hikes this year. When the Federal Reserve increases interest rates, your credit card debt becomes more expensive. Since these rate increase real-world effects on consumers and businesses it’s important to stay on top of your finances. However, there are ways to reduce or eliminate credit card interest. Personal Loans If you are faced with the burden of credit card debt like so many other Americans, one way to deal with rising rates is personal loans. More and more, I have been seeing people borrowing (personal loans) with lower rates to deal with their credit card debt. In other words, they are using the borrowed money to avoid paying high interest on their credit cards, even though the borrower will still have to pay back the personal loan rate. Dependent upon what credit card rate you have and what personal loan rate you can get and the terms of the loan, this can be an effective way to avoid skyrocket credit card interest. Personal loans come with fixed interest rates, which means if the Federal Reserves does another hike in interest rates, you will not be subjected to paying a higher rate, unlike most credit card contracts. So, what will be an indicator of how good of a rate you will get on a personal loan? Drum roll, your credit score. Your credit score is essential in determining if you are a trustworthy borrower or not. Since, personal loans are unsecured debt the loan doesn’t require you to use an asset as collateral. However don’t be fooled, if you go into default the lender can take legal actions against you. It’s also important to watch out for scams, especially if someone approves you with a bad credit score or someone who approves you without checking your credit history. It also may be easier to get approved for a personal loan from a bank you already have accounts with. "It’s important to watch out for scams, especially if someone approves you with a bad credit score or someone who approves you without checking your credit history." Balance Transfers Balance transfers, if done carefully, can be a successful way to eliminate high-interest rate credit card debt. Overwhelming credit card debt can disgruntle consumers which may lead to people choosing options which may appeal to them at first, but if they didn’t fully research only end up hurting them in the long run. Moving your credit card debt from a high-interest rate to a lower one can be appealing and effective for some but not everyone. Transferring your balance is only worthwhile if you can pay off the debt within the introductory low-interest rate window. Many time people transfer their balances to 0 percent interest rate cards but you have to be extremely dedicated to paying off your debt, with one missed payments some creditors can take away the promotional rate and they can charge you with retroactive interest. If you decide to do a balance transfer paying down your debt has to be a priority otherwise your financial situation can spiral out of control. Negotiating For a Lower Rate Ask and you shall receive; sometimes just calling your credit card company and simply asking for a lower rate can work in your favor. Inform your credit card company that you have been exploring lower interest rate credit cards and are struggling to meet your monthly payments. Sometimes companies can be willing to work with you especially if you have some sort of hardship (illness, sudden loss of a job, etc.) If you are heavily buried in credit card debt, you may be able to negotiate a settlement to a lesser amount than your original balance. Try to negotiate for new (lower) monthly payments over a longer term; offer to pay some of your bills in cash so they know you are good for the money. Financial negotiating is a skill everyone should consider learning being that it gives you the potential to save a decent amount of money. If you make timely payments, have been a loyal customer, or have great credit use this as an edge in your negotiation. Keep in mind that you are giving your provider business- you are the customer. This can help when trying to reach a better rate, it can’t hurt to try. When looking for ways to eliminate interest rates to pay down your debt, be cautious certain get-out-of-debt options could have you paying more. Regardless of the above-mentioned strategies, as rates rise, being in debt will cost more and more so consumers should do their best to adjust their budgets and avoid taking on more debt. Getting out of debt means coming to the realization that you need to make changes. Leslie Tayne Leslie H. Tayne has more than 15 years' experience in the practice area of consumer and business financial debt-related services. Speaker, Author of Life & Debt, Attorney and Founder of the Tayne Law Group, P.C., Leslie is working towards reshaping the debt industry by offering real, proven solutions to help her clients get back on the road to financial freedom.