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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: Orhan Cam / Shutterstock March 16, 2020 Kendall Little is a personal finance writer who previously covered credit card news and advice at Bankrate. Kendall currently is a . She is originally from metro Atlanta and holds bachelor’s degrees from the University of Georgia in both journalism and film studies. Before joining Bankrate in August 2018, Kendall worked in digital communications throughout various industries, including education, health care and television. Bankrate logo The Bankrate promise
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Like its decision earlier this month, the catalyst for the Fed’s emergency rate cut is the growing global threat of coronavirus to both public health and the economy. “At issue is how much this inoculation [from the Fed] can protect the economy and support the financial markets from a public health crisis and supply constraints radiating out from China,” Mark Hamrick, senior economic analyst at Bankrate, said following the Fed’s first emergency decision in early March. “Lower interest rates do little to make consumers and businesses feel substantially more confident about the future when a health crisis is spreading around the world,” he continued. “It also cannot address the hobbled supply chains, including manufacturing capability in China and South Korea. Still, the Fed is doing what it can to try to keep the economy out of recession.” Credit card businesses are especially sensitive to changes in consumer spending, says Ted Rossman, industry analyst at Bankrate. Visa and Mastercard, two of the most ubiquitous card networks, have already cut revenue outlooks. “Current worries center around health issues and the extent to which they impact people and economies,” Rossman says. “If people aren’t traveling or going out to eat, that’s because they’re afraid they’re going to get sick, not because the fed funds rate was too high.” How credit cardholders may be affected
Cardholders may likely see a cut to their interest rates due to the Fed’s decision, but it won’t be enough to make a significant difference in debt balances. “Reducing interest rates to borrowers will ease the burden of existing debts slightly but is unlikely to spur the usual surge of borrowing as consumers and businesses batten down the hatches for a coming drop off in U.S. economic activity,” says Greg McBride, CFA, chief financial analyst at Bankrate. “Now that we’ve had 150 basis points of emergency cuts, we’ll probably see a national average credit card rate around 16 percent within the next month or two, down from about 17.5 percent in late February,” Rossman says. “Of course, that’s still a hefty rate — way higher than most mortgages, student loans and auto loans.” For someone carrying the national average credit card debt balance of about $5,700 and making minimum payments, that 1 percent interest reduction isn’t going to save you much in the long run. While the long-term effects of coronavirus on American consumers are still unknown, you can take action now to protect your wallet. As of the final quarter of 2019, Americans’ credit card debt hit a $930 billion and credit card delinquencies rose to a total 5.32 percent. Young Americans, ages 18-29, experienced delinquency rates at an even higher 9.36 percent. “Credit card rates are so much higher than most other forms of debt, so paying off credit card debt ASAP needs to be a priority,” Rossman says. Pay down your debts now
Now, more than ever, is a great time to sign up for a zero percent interest balance transfer if you have credit card debt, Rossman says. As issuers look to make up revenue shortfalls, these offers may become less generous with shorter time-frames and higher fees. Taking on a now will halt mounting interest for an introductory period (many lasting 12, 15 or 18 months), allowing your payments to go toward reducing your principal balance rather than interest. This can be especially useful for “giving your budget some breathing room at a time when some people will be losing income, and locking in the certainty of that zero percent rate for up to 21 months,” Rossman says. And if you’re currently paying just the minimum balances on your credit cards, start dedicating as much as you can spare each month to your debt in order to eliminate it more quickly. Additionally, you should instill that can help you build and maintain a healthy credit score, like making payments on time, keeping a low and monitoring your credit report regularly for any sign of unauthorized activity. Bottom line
The Fed’s rate decision may lead to lower interest rates on your card balances in coming weeks, but since credit card rates are already among the highest allotted, the impact on your wallet will be minimal. Instead of focusing on marginal rate differences, you should pay off your debt balances as quickly as you can to mitigate high interest payments over time. As the effects of coronavirus continue to play out, make your financial health a priority by eliminating high-interest debt and continuing to practice good credit habits that can help sustain you long-term. SHARE: Kendall Little is a personal finance writer who previously covered credit card news and advice at Bankrate. Kendall currently is a . She is originally from metro Atlanta and holds bachelor’s degrees from the University of Georgia in both journalism and film studies. Before joining Bankrate in August 2018, Kendall worked in digital communications throughout various industries, including education, health care and television. Related Articles