If you’re carrying a credit card balance, the time to start paying it off is now. Due to increasing inflation, the Federal Reserve’s been responsible for a series of rate hikes since early this year. The institution voted in favor of rate hikes again in July, and another interest rate will most likely happen in September. 

When the Fed raises interests, it affects pretty much every part of the economy. That includes financial resources like loans and credit cards. The latter’s APR – or annual percentage rate – increases alongside the Federal Reserve’s hikes. That means it could cost you a lot more money if you currently have some debt in your credit card.

What that means for you is that if you carry a credit card balance past its due date, that balance will be vulnerable to the interest rate pre-determined by your issuer and your credit score. For anyone carrying a balance from month to month, the APR will continually grow with each rate hike by the Fed. Plus, the bank will likely not communicate the increase to you.

When the Fed increases the federal funds rate – which happens overnight between banks – it causes your credit card APR to increase with it. The federal funds rate is responsible for dictating how lending works between banks. In turn, that ends up affecting the institution’s cost, and it passes on to consumers. 

That is because the federal funds rate is what controls the prime rate, which is the basis for every borrowing rate provided by banks to their customers. A bank decides its premiums according to institutional factors and the applicant’s overall creditworthiness. This produces interest rates like a credit card’s APR.

So when should you expect an increase on your credit card rates? The APR is adjusted usually within a billing cycle or two. Therefore, chances are you’ve had a new APR adjustment from other rate hikes.

If you tend to pay down your credit card balance in full each month, this is not an issue you need to worry about. However, if you usually carry a balance from month to month, it’ll cost you a lot more with every rate hike.

There are a few steps you can take to make sure you pay down your credit card balance in order to save money in the long run. See what they are below.

While on the subject of credit cards and credit card balance, do you think that owning a rewards credit card affects your spending habits? In the link below, we’ll discuss if the promise of cash back on purchases entices you to increase your expenses.