How Fed rate hike will affect your finances

Credit cards

Most credit cards have a variable rate, which means there’s a direct connection to the Fed’s benchmark rate and card holders will feel an immediate pinch.

“Variable rate debt is where you are most susceptible as interest rates rise,” McBride said.

The average American has a credit card balance of $6,375, up nearly 3 percent from last year, according to Experian’s annual study on the state of credit and debt in America. Total credit card debt has reached its highest point ever, surpassing $1 trillion in 2017, according to a separate report by the Federal Reserve.

Tacking on a 25-basis-point increase will cost credit card users roughly $1.6 billion in extra finance charges in 2018, according to a WalletHub analysis. Factoring in the five previous rate hikes, credit card users will pay about $8.4 billion more in 2018 than they would have otherwise, WalletHub said.

However, for those with good credit, there are still opportunities to find a better rate or snag a zero-interest balance transfer offer to insulate yourself for a time from further rate hikes and “give yourself a tail wind toward debt repayment,” McBride said.

Mortgages

The economy, the Fed and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes, so there’s already been a spike since the start of the year.

The average 30-year fixed-rate is now about 4.54 percent — up from 4.15 percent on Jan. 1 and significantly higher than the record low of 3.5 percent in December 2012.

With interest rates rising, adjustable-rate mortgages will certainly be heading higher, too, and those with some types of ARM loans “are sitting ducks for getting another increase,” McBride said.

Many homeowners with adjustable-rate home equity lines of credit, which are pegged to the prime rate, also will be affected. But unlike an adjustable-rate mortgage, these loans reset immediately rather than once a year.

For example, a rate increase of 25 basis points would cause borrowers with a $50,000 home equity line of credit to see a $10 to $11 increase in their next monthly payment, according to Mike Kinane, senior vice president of consumer lending at TD Bank.

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