WHAT THE FEDERAL INTEREST RATE HIKE MEANS FOR YOU
Posted on: Mar. 27, 2017 in Credit, Debt, Money

The Federal Reserve System, widely known as The Fed, is the central banking system in the United States. According to its website, “it performs five general functions to promote the effective operation of the U.S. economy, and more generally, the public interest.” It works together with our government to promote employment, keep our economy stable, and promote consumer protections, among other things.

You may have heard that The Fed recently increased its interest rate by one-quarter percentage point. The new federal interest rate is at a range of 0.75% - 1%. Prior to the recession, the interest rate tended to be around 2% - 5%. This latest rate increase, the third in the past 16 months, brings us closer to what is considered the normal interest rate.

The Fed raises and lowers the interest rate from time to time to help stimulate the economy when it needs a boost and to slow it down when it’s overactive. As you can imagine, a drastic rate change would send the economy into an upheaval, so these very small, periodic changes are necessary to lessen the impact.

A raise in the interest rate means exactly what you’d expect it to, that things will cost more. It will become more expensive for companies to conduct business. Also, consumers will find it is more expensive to borrow money, whether in the form of credit cards, mortgages, or other loans. If you currently have credit card debt, it is likely you will see an increase in your interest rate.

How much this will hurt depends on your situation. If you have a large amount of credit card debt, you’ll feel this increase more. If you’re just about to borrow money, that will likely be more expensive than it would have been previously. It’s important to note that experts feel the federal interest rate will continue to rise over the next few years, and the trend towards borrowing costing more will likely continue. The best course of action is to pay off debt as quickly as possible to reduce the amount of interest you’ll pay. Of course, that advice holds true no matter what the interest rate is.

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