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Credit Card Debt Is Becoming More Expensive

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With credit scores at an all-time high and credit card delinquency rates near all-time lows, the Federal Reserve has raised rates four times since December of 2015. Experts say because of the increased interest rates, it will cost consumers more to pay their bills.

According to Jill Gonzalez, an analyst for the finance website Wallethub, the Federal Reserve’s rate hikes will cost credit card users an extra $6 billion in interest this year alone. That means debt becomes more expensive when the Fed raises rates, making it harder to pay bills on time and threatens credit scores. When credit scores fall, costs rise even more.

“It’s been quite a while since the Great Recession," she said. "We’re seeing things on credit reports that occurred around the Great Recession or maybe right after it, starting to drop off those reports, so whether that’s personal bankruptcy, which typically stays on a credit report for ten years. We’re also seeing less than stellar things, whether it’s collection accounts etc., drop off of credit reports after seven to ten years.”

When everybody does better with their personal finances, the overall economy improves. Gonzalez says that’s when the Federal Reserve makes the decision to increase rates. She says there are a few things the Fed looks at when deciding to raise or lower rates.

“It mainly has to do with these un-employment rates," Gonzalez said. "The second is that we were at zero after the recession, we had been at zero for about a decade in terms of what the federal prime rate was. Now we’re ready to be inching back up to some type of positive percentage there.”

Wallethub has done a survey to see how Americans react to the Fed’s decisions.

“We asked Americans, ‘Do you think the Federal Reserve System should stay in place?’ ‘Do you think it should stay in place, but needs some work?’ ‘Or do you think we should get rid of it all together?’ Two-thirds of Americans said that we should keep it, it does need some work. About 15% of them said we should get rid of it all together,” said Gonzalez.

Wallethub also asked Americans if they think rate hikes are good for the economy. A third are supportive, a third said they didn’t know and third said it’s bad for the economy.

“Then we asked them if they think rate hikes are good or bad for their personal wallet. The majority, almost 60%, said that it was bad for the wallet, even if they might have said that it was good for the economy. And I really think that is the key take-away here. Even if the economy is doing well on paper, we’re seeing full employment, there’s still underemployment, there still wages that have been stagnant for a decade now. That’s where consumers are still hurting.”

The Federal Reserve is planning on more raises in the future.

“This is really the time to look at your finances and try to start setting aside money to pay down your debts more quickly because those debts are going to be costing you more and more as these rate hikes continue.”