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Why Your Credit Card Costs May Spike in 2017

By Nathan Hamilton - Mar 27, 2017 at 10:22AM

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If you're carrying debt or rely upon credit card rewards, you'll want to uncover why.

Credit card debt averages over $16,000 per American household, and the number has steadily climbed over the past few years. Chances are that credit card costs stand to increase more in 2017 as well, and a rise could affect some of the best credit card sign-up bonus offers and 0% introductory APR credit cards.

Learn why in the following video segment, as Motley Fool analysts Michael Douglass and Nathan Hamilton talk more about recent credit card trends.

Michael Douglass: All right, so let's talk about credit card costs in 2017 and one of the really big macro issues that could spike those costs. That is the Fed raising interest rates. Certainly, they raised target rates in December. Card APRs soon followed. The Fed has signaled that they may be raising rates in further in 2017. 

Nathan Hamilton: Yeah. So,we're sitting here, earlyish March, and the Fed meeting is a week from now. They've already signaled, during this meeting, possibly anticipating a rate increase. Which happened in December. Which raised credit card APRs in January and February. 

If you look at what's been happening on a very broad scheme is the Fed has signaled about two to three additional rate increases, in 2017 alone. So that's on the back of the economy improving a little bit and seeing some signs of improvement. So there is that overall positive effect. But if you are carrying debt on a credit card, they are variable APRs. So they are going to float with what interest rates do, which are influenced by what the Fed says.

Douglass: Right. That'll make a big difference. Let's face it -- the average American household has about $16,000 of credit card debt.

Hamilton: Crazy, right?

Douglass: That is a frighteningly large number.

Hamilton: That's interest-bearing debt. 

Douglass: Right. 

Hamilton: That doesn't account for the people that are using credit cards, say, for rewards and maybe not incurring interest charges. 

Douglass: Yeah. That's frightening. So $16,000 worth of interest-bearing credit card debt. If APR is on a card that average family owns, bump up by a couple of percentage points, that's hundreds of extra dollars a year in interest that they're paying. 

Hamilton: Even, you say, a couple percentage points, even with the last round a lot of cards they bumped about half a percentage point. Fifty basis points. But that is a significant impact if you're carrying $16,000, even that small interest-rate increase.

Douglass: Yeah. Absolutely. Well, what can you do, then? Well, you know, I suppose you could write the Fed a letter. That's probably not going to do too much. Your better option is apply for a balance-transfer card or something like that if you're carrying debt. You can, then, go ahead and take that interest-bearing debt and make it interest-free for however long the card allows you. In some cases 12 months. In some cases 21. Some cases, others. So that you can work toward snowballing that debt and getting it out before you incur more interest. 

Hamilton: As you think about what happens with credit cards, they have a business model and they've got to maintain the economics of that business model. One of the things they can do as they raise rates, they rejigger other features of credit cards. Some will be those balance-transfer windows. Maybe they go from 18 months to 15 months. Or 15 to 12 months. Or, instead of offering a $500 sign-up bonus, they offer $400. 

So there's that balance that credit cards have to take to, essentially, be a profitable business. So I can't say ... as I look at what's happening in the broader picture, we have no idea of what's going to happen with rates. We're not in the Fed meetings, anything. But they have signaled some intentions to increase rates over the longer term. So that means if you're looking at a sign-up bonus, if you're looking at a balance-transfer credit card, now may be a good time to get in there and start doing your research, and, obviously, we've got some research on our website as well.

Douglass: Yeah. Absolutely. In fact, we have our picks for the best balance-transfer credit cards at fool.com/creditcards. So if you're thinking about this and worried about what your debt could cost you, head to our website. We've got a lot of information. It's free.

Hamilton: And fee friendly.

Douglass: And yes. At The Motley Fool, we're very concerned about fees. So we want to make sure that we are helping people do the best thing they can with their debt. Check us out, again, fool.com/creditcards. Nathan, thanks as always. 

Hamilton: Thank you.

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