“The Ramsey Show” co-host explains how the Fed’s latest rate hike could affect credit cards, mortgages and savings.
The Federal Reserve’s first interest rate hike in more than three years is likely to increase borrowing costs for many consumers, particularly those with variable-rate debt like credit cards and home equity lines of credit.
Earlier this month, the Fed unanimously voted to increase its benchmark federal funds rate by 25 basis points, raising its target range from 3.5%-3.75% to 3.75%-4%. This is the central bank’s first rate hike since July 2023, after keeping rates steady during its first five meetings of the year.
For consumers, the biggest impact will likely come from rising borrowing costs.
“Borrowing has gotten a little more expensive,” George Kamel, co-host of “The Ramsey Show,” told FOX Business. “…Think about your credit card: instead of 28%, it could be 28.25%. Your mortgage, if you get a new fixed rate mortgage today, it could go from 6% to 6.25%.”
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Kamel said the Fed’s decision primarily affected variable-rate debt, including credit cards. (iStock)
Kamel said the Fed’s decision primarily affects adjustable-rate debt, including credit cards, home equity lines of credit (HELOCs) and adjustable-rate mortgages once they reset.
Consumers who already have fixed-rate mortgages, auto loans and other fixed-rate debt generally will not see their monthly payments change.
For Americans with credit card balances, Kamel said the latest rate hike should serve as another reminder to make paying off high-interest debt a priority.
“Credit cards have some of the highest APRs of all types of consumer debt, ranging from 20% to 30%,” Kamel said. “…Cut up the cards, stop using the cards, don’t add anything more to the balance and just aggressively try to knock more over the principal until this thing goes away.”
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Mortgage rates are influenced more by Treasury yields and the bond market than the federal funds rate, Kamel said. (iStock/Getty Images Plus)
Kamel said he recommends the “debt snowball” strategy, which involves paying off debts from the smallest balance to the largest while making minimum payments on all other accounts.
Mortgage rates are influenced more by Treasury yields and the bond market than the federal funds rate, Kamel said.
However, potential buyers could see borrowing costs increase slightly.
“It won’t be life-changing, but it will just make it a little more difficult for people trying to get their foot in the door of homeownership,” he said.
Savers could, however, see a modest advantage. Kamel said banks could gradually increase yields on high-yield savings accounts, allowing consumers to earn more on emergency funds and initial savings.
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Ultimately, Kamel said consumers should focus on paying down variable-rate debt and building savings rather than worrying about future Fed actions. (RENARD company)
“There is a silver lining to rising federal funds rates, which is that high-yield savings accounts could get a boost,” he said.
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Overall, Kamel said consumers should focus on paying down variable-rate debt and building savings rather than worrying about future Fed actions.
“The Fed is going to raise and lower rates for the rest of your life,” he said. “Your job is to make sure it doesn’t matter when they do it.”
Eric Revell of FOX Business contributed to this report.
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