Christopher Todd Morrison, P.C.
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Fed's rate increase will affect credit card users

Texas consumers are likely to see monthly debt service payments increase following an interest rate hike by the Federal Reserve. Homeowners, home equity borrowers and individuals who use credit cards will pay more for their revolving loans as a consequence of the quarter-percentage point increase of the short-term key rate.

A certified financial planner opined that the interest rate change might alter debt-repayment strategies. It might make sense to pay down variable-rate debt faster, she said, or refinance it to avoid increased interest payments. The interest rates associated with credit cards, home equity lines of credit and adjustable-rate mortgages are all influenced by the Federal Reserve's key rate.

Car buyers may also feel the effect of the rate increase, though the competitive auto loan market might act to keep the cost of money low for motor vehicle purchases. With average credit card rates at 15.07 percent, a quarter-point interest rate increase adds about $175 in interest payments per year to a $5,000 balance.

The Federal Reserve's key rate has an indirect impact on fixed-rate mortgages as well. Because the interest rate increase has already been incorporated into long-term mortgage rates, according to a mortgage analyst, fixed-rate mortgages shouldn't see dramatic spikes. Interest for adjustable-rate mortgages, by contrast, is modified every year, and the Fed's actions may increase those payments immediately.

The same logic applies to home equity lines of credit, but because of their generally lower interest rates HELOC payments should not increase as significantly as credit card payments. Individuals who are struggling to pay off debt may want to speak with an attorney who has experience inbankruptcy law to see if filing under Chapter 13 would be an appropriate option.

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