The U.S. Federal Reserve is now forced to increase the target federal funds rate by the end of March, which will automatically attract increased credit card interest rates, alongside many other financial products. Therefore, this will be the first of several rate increases in 2018, presuming that the current economic conditions remain strong, says a report from Forbes.
Consumers can’t pay their debts!
While the United States is actually doing good from a financial point of view, this doesn’t mean that it’s not worth observing some of the most intriguing aspects of consumers debts. Specifically, credit card users are still facing difficulties that can be exacerbated by increased rates.
According to a study conducted in December 2017, Americans owe a total of $1.027 trillion just in credit card debt, as the average household has a card balance of over $15,000. Therefore, if credit card interest rates will indeed grow, the debt has all the chances to go way above the current amount.
The Federal Reserve is expected to raise the current rate by 0.25%. Even though this doesn’t seem that much, it can significantly add to the overall debt burden. For example, for a debt of $10,000 and an APR of 15%, let’s say that the monthly payment is $200. If the interest rate grows to 15.25%, the consumer would own an additional $189.
Credit card debt can become unaffordable
There are several signs pointing to this happening in the near future, as major credit card companies are claiming that they will increase charge-off rates. This happens only when a bank declared that it’s less likely to recover a debt from an account. Or, if you prefer, the account holder cannot pay back the accumulated debt.
Despite a potential increase of credit card interest rates, overall delinquencies on credit card loans, among all banks, is far from where it was during the recession. Outstanding credit card debt, as a share of disposable income, grew by 14 basis points in Q3 of 2017, according to the American Bankers Association.
The Fiscal Times also says that “data show consumers were at least three months behind repayments or considered otherwise distressed on $11.9 billion of credit card debt.” Basically, we’re talking about a seven-year high.
All these factors lead to an increased strain that the total credit card debt in the United States is inflicting on cardholders.