“The Ramsey Show” co-host explains how the Federal Reserve’s latest rate hike could affect credit cards, mortgages and savings. The Federal Reserve’s first interest rate increase in more than three years is likely to increase borrowing costs for many consumers, particularly those who have variable-rate debt, such as credit cards and home equity lines of credit. Earlier this month, the Federal Reserve voted unanimously to increase its benchmark federal funds rate by 25 basis points, raising its target range from 3.5%-3.75% to 3.75%-4%. The increase marked the central bank’s first rate hike since July 2023 after holding rates steady through its first five meetings of the year. For consumers, the biggest impact will likely come through higher borrowing costs. “Loans have gotten a little more expensive,” George Kamel, co-host of “The Ramsey Show,” told FOX Business. “…Think about your credit card: Instead of 28%, it could be 28.25%. Your mortgage, if you get a new mortgage today with a fixed rate, could go from 6% to 6.25%.” WHY THE FED IS NOT READY TO DECLARE VICTORY OVER INFLATION Kamel said the Fed’s decision primarily affects variable rate debt, including credit cards. (iStock) Kamel said the Federal Reserve’s decision primarily affects variable-rate debt, including credit cards, home equity lines of credit (HELOCs) and adjustable-rate mortgages once they are reinstated. Consumers with existing fixed-rate mortgages, auto loans and other fixed-rate debt generally will not see their monthly payments change. APRs on any type of consumer debt, from 20% to 30%,” Kamel said. “…Cut up the cards, stop using them, don’t add anything else to the balance and just aggressively try to reduce the principal further until it’s gone.” FEDERAL RESERVE RAISES INTEREST RATES FOR THE FIRST TIME SINCE 2023 AMID HAPPY INFLATION Mortgage rates are most influenced by Treasury and bond market yields than by the federal funds rate, Kamel said. (iStock/Getty Images Plus) Kamel said he recommends the “debt snowball” strategy, which involves paying off debt from the smallest balance to the largest while still making minimum payments on all other accounts. Mortgage rates are more influenced by Treasury and bond market yields than by the federal funds rate, Kamel said. could see borrowing costs rise. “It’s not going to be a life-changing amount, but it will just make it a little more difficult for those people who are trying to get their foot in the door of homeownership,” he said. However, savers may see a modest benefit. Kamel said banks could gradually increase returns on high-yield savings accounts, allowing consumers to earn more in emergency funds and down payment savings. WARSH POINTS ON WHERE INTEREST RATES ARE HEADING Ultimately, Kamel said consumers should focus on paying off variable-rate debt and building savings rather than worrying about future actions from the Federal Reserve (FOX Business) “There’s a silver lining to raising the federal funds rate, and that’s that high-yield savings accounts could get a boost,” he said. “Your job is to make sure it doesn’t matter when they do it.” Business contributed to this report.
