In Your Debt: Forget the Fed, pay off your credit card debt

With inflation at its highest rate since the early 1980s , the Federal Reserve is adjusting interest rates to hopefully restabilize the U.S. economy. In short, the Fed changes the federal funds rate, which alters the prime rate — that’s the rate banks charge customers with high credit ratings. Credit card issuers add onto the prime rate to set their interest rates, so when the prime rate goes up, so does what you’ll pay when you’re in debt.

Got all that? Great. Now forget what you just read and pay attention to this part: If you have significant credit card debt, it doesn’t really matter what the Fed is doing. Your credit card debt has always been, and will continue to be, expensive.

THE TRUE COST OF CREDIT CARD DEBT OVER TIME

If you have a $5,000 balance remaining on your credit card from month to month, and your interest rate is 16%, you’ll spend $800 in interest over the course of a year. If your interest rate increases to 16.25%, that translates to only an extra $13 in interest over a year.

Technically, that means it’s not so much a rate hike as it is a gentle uphill slope. But $800 was already a lot, and that’s without accounting for the fact that you’ll still need to spend additional money you might not be able to pay back. The bills don’t stop just because you’re in debt.