What Does the Fed's Latest Rate Hike Mean for Your Credit Card Balance?

It may be time to get serious about paying your debt off.

Rampant inflation has been with us for a long time now, and the problem is not close to being over. Case in point: February's annual Consumer Price Index reading was 6%. But the Federal Reserve, as a matter of policy, likes to keep inflation at around the 2% mark. The central bank believes this level of inflation lends to a stable economy and consumer confidence. 

Meanwhile, to combat inflation, the Fed has been hiking up interest rates since early 2022. And on March 22, the Fed moved forward with its second 0.25% interest rate hike this year.

That move wasn't unexpected at all. The central bank had been warning that it would need to keep raising interest rates to fight inflation. But if you're a credit card borrower, you should know that this latest rate hike might impact you in a negative way.

Your payments could get more expensive

The Federal Reserve doesn't set consumer interest rates. Rather, it sets the federal funds rate, which is what banks charge each to borrow on a short-term basis. 

But when the Fed raises its benchmark interest rate, the cost of borrowing tends to rise for consumers across the board. And from there, everything from auto loans to personal loans to home equity loans tends to become more expensive.

Meanwhile, rate hikes can be pretty detrimental for borrowers with variable interest debt, like those who are carrying balances on their credit cards. When you're not borrowing at a fixed rate, the interest rate on your debt can rise, making it more expensive. And that's the situation credit card borrowers face today. If you're barely making your minimum payments every month, an increase in your interest rate could make it so you're not even able to submit those in a timely manner. That could result in extensive credit score damage.

Aim to whittle down your debt sooner rather than later

If you've been carrying credit card debt for quite some time, your best protection against further interest rate hikes is to pay off your balances as quickly as possible. And you may want to turn to the gig economy to make that happen.

It's easy to see how your regular paycheck alone may not make it possible to get out of debt. But if you're able to boost your income with a second job, you can allocate those earnings to your credit card balances.

At the same time, if you're trying to pay off credit card debt, make every effort to not rack up more debt along the way. Don't swipe your credit cards unless it's an emergency, and budget carefully so you're able to cover your monthly expenses. Also, try cutting back on expenses that aren't essential, like streaming services and subscriptions. 

The Fed still has a ways to go in its fight to cool inflation. But as a credit card borrower, that puts you in a pretty rough spot. So do your best to pay down that debt -- before it gets all the more costly.