Personal Finance

How to lower your credit card costs before the Fed starts hiking rates

Key Points
  • Carrying a balance on your credit card is about to get more expensive.
  • The Fed is widely expected to raise rates to 1.75 percent from 1.50 percent on Wednesday.
  • Here are a number of ways to both consolidate your debt and get a lower rate, at least temporarily.
Getty Images

Carrying a balance on your credit card is about to get more expensive.

The Federal Reserve is expected to raise short-term interest rates by a quarter percentage point to 1.75 percent from 1.50 percent when Fed officials wrap up their two-day policy meeting on Wednesday.

By raising its benchmark rate, banks will have to pay more to borrow from the Fed – and guess who the banks will pass those costs onto? That's right, you.

While higher rates will likely raise borrowing costs on everything from mortgages to student loans, credit card holders will almost immediately feel the pinch – the average card issuer will boost borrowing rates within the next few months. That gives you just a few statement cycles to decide on the best option for managing your credit card debt.

"Credit card debt holders, in particular, are very exposed to rate increases and one to two statement cycles is very typical," said Greg McBride, chief financial analyst at personal finance site

Americans had an average credit card balance of $1,734 per account in the third quarter of 2017, according to a survey by the Federal Reserve Bank of New York. Rising rates could potentially add hundreds of dollars in additional interest payments this year.

A good credit score is key to your financial future — here's how to boost it

Moves you can use

To avoid paying more than you should, make a move now before rates go substantially higher.

There are a number of ways to both consolidate your debt and lock in a lower rate, at least for a while. The type of options available to you depend on your creditworthiness and the amount of debt you're carrying. Here are a few options:

Zero percent balance transfer cards: The good news is that interest rates remain historically low, so card companies are offering cards that boast long-term zero percent balance transfers. If you have balances on a number of variable-rate credit cards, consider consolidating them all to a zero percent balance transfer card.

"There are still plenty of zero percent offers for balance transfers, as well as purchases, that last as long as 15 months," says's McBride. "What that does is give you 15 months where you are both insulated from rising interest rates and have a very strong tail wind to eliminate your debt."

Keep in mind that many balance transfer cards charge a transfer fee of about 3 percent. If your credit score is solid, however, you may qualify for cards that come with little or no transfer fees. Compare offers for balance transfer cards at comparison sites such as,, and WalletHub.

Take a look at the cards you already have: If your credit score eliminates you from the best card offers, the solution to consolidating and benefiting from a lower card rate may already be right there in your wallet. Brooklyn Lowery, senior manager at credit card comparison site, says cardholders may already have accounts open that offer lower rates or introductory balance transfer offers.

"You may not even have to open a new card account," she said. "Even if you have one card with a 16.99 percent APR, but the other card has a 14.99 percent APR, it might be worthwhile to transfer the balance."

When comparing cards, pay attention to any transfer fees and other account fees to make sure the card you choose is offering the best deal, she said.

Home equity loan: Using your home as collateral to pay down a pile of credit card debt is far from ideal. The drawbacks are many: the application process is time-consuming, rates right now tend to be in the 5 percent or higher range and interest payments generally aren't tax deductible. But for individuals struggling to make ends meet — even before rates head substantially higher — a home equity loan can be a way to consolidate your debt and motivate you to make set monthly payments to pay off your debt.

A couple who paid off $127,000 of debt shares their No. 1 money saving tip

Motivation is key: If you continue to borrow on your cards while you're paying off the home equity loan you're just digging a bigger hole. If you choose to borrow against your home, resolve to avoid taking on more debt until the loan is paid off.

Act now!

Whatever you decide to do to manage your debt, don't put it off. This week's anticipated rate hike is expected to be the first of several this year – economists are forecasting two more rate hikes to come in 2018, and more than a third of economists see a chance for four increases before the year is out.

If the Fed has just three rate hikes of 0.25 percent this year, the average cardholder could see annual interest payments rise by more than $300 in 2018. So it pays to get moving.

Once you've decided on the best way for you to refinance or consolidate your credit card debt, resolve to reduce that debt as quickly as possible to save even more on borrowing costs as interest rates continue to rise.