TAKE AN INTEREST

Address card balances before rates increase

While Brexit may have Fed chief Janet Yellen continuing to pause on hiking rates next month, it won’t be long before rates will climb, so take the opportunity to get your credit card balances in check, experts warn.

“When the Fed raises the rate, card companies will act very quickly to raise rates,” says Matt Schulz, an analyst with CreditCards.com.

“It is very simple,” says Bill Hardekopf, founder of LowCards.com. “If the Fed takes the rate up 25 basis points, then most every credit card on the market will experience an increase of that amount.”

Twenty-five basis points is a quarter of a percent point. That will mean the cardholder digs deeper.

The Fed could raise rates at meetings in July, September or December. The analysts’ consensus is that sometime in the next six months, the Fed will do so — possibly several times. The average credit card rate is 15.2 percent, says CreditCards.com. But some cards charge more.

Those with large card balances now pay about 18 percent interest, according to Sean McQuay, a card analyst with NerdWallet. Higher rates result in paying more interest.

Jill Gonzalez, a card analyst with WalletHub, says many people could be affected. She warns that, based on first-quarter numbers, Americans are now charging purchases at close to the same pace seen in the disastrous year of 2008.

That year, all companies saw a spike in card delinquencies.

“The average card balance is close to what average balances were back in the first quarter of 2008. Americans, if they continue charging at the same rate, could reach a new record of $1 trillion in card debt by the end of the year,” Gonzalez warns.

The average cardholder owes $7,600, she says. That average includes households that pay off balances each month, and those car- rying credit balances each month and paying interest on them. The latter cardholders are called revolvers. They have average balances of about $16,000, she adds.

And, if the average card rate went up 25 basis points, then cardholders would pay much more a month in interest — and it would take them longer to pay off balances.

Take someone who owes $15,000 and is paying 13 percent interest: A single small rate bump of 0.25 per- cent adds about $400 in annual interest. A larger cumulative rate bump of 1 percent adds nearly $1,500 in interest.

That means, say card experts, that between now and the July Fed meeting, the card rate will continue to be low. It is easier to pay off balances because low-rate card offers and zero-rate transfer deals are around.

But after a rate hike, cards would be more expensive and deals harder to find, Gonzalez says.