We should know within the next month if the Federal Reserve will raise interest rates or if it will delay it again until next year. It remains unknown because there is a mixed bag of both positive and negative economic data. Polls of economists show they do expect a rate hike this year, and most concur that it’ll be between 25 and 50 basis points, and reach 100 basis points sometime next year.
Should United States consumers be concerned about a rate hike? Definitely. Why? Your debt.
With credit card debt on the rise and consumers returning to their old habits of borrowing, Americans should be plenty worried about their debt servicing payments if the central bank decides to increase interest rates. And this isn’t debt still stemming from the financial crisis; consumers are raking up their credit cards all over again.
Today, total credit card stands at $901 billion and has jumped 3.2 percent in the past 12 months. This is up 7.3 percent from 2010’s $839.5 billion.
The average U.S. household credit card debt is $15,583. It’s estimated that 35 million Americans carry a minimum of $2,500 in credit card debt each month.
Speaking in an interview with CNBC, Sean McQuay, a credit card associate at Nerdwallet, avers that just a one percent increase in interest rates could cost consumers about $9 billion per year. “The same amount of debt that Americans are carrying is going to get more expensive—but the problem is they are carrying more debt every year.”
McQuay provided this advice to consumers facing an unnerving amount of debt: “Finances don’t need to be exciting to be effective. People just need to write down what they are spending and where they are spending it.”
On a governmental scale, Washington should be just as concerned about a rate hike as you potentially could be. The country is already in the red by $19 trillion and will spend this fiscal year more than $350 billion on interest payments alone.
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