With the number of COVID-19 cases soaring past 8,700 in the United States as of time of writing and the Fed hacking away at the short-term borrowing rate it controls as an emergency desperate measure, you might be wondering if your credit card interest could drop, at least temporarily that is.
For starters, credit card interest rates are tied to this thing called ‘prime rate'. When the Fed cuts its rate, the prime rate drops. The opposite is true when the Fed raises its rate. As you can already guess, with the current COVID-19 pandemic the United States is dealing with and the slashed Fed rate, you could potentially pay lower interest payments on your credit cards.
A drop in the interest rate you pay on your credit card balance is always a good thing, if you already carry a balance. That could translate to some savings on your interest payments - a welcome sliver of hope in this trying time as we grapple with the rapidly evolving COVID-19 crisis!
How so, you wonder? Mortgages and credit cards that have a variable APR will be affected when the prime rate changes. To be sure, reach out to your lender, bank and/or credit card issuer to check.
If you currently deal with adjustable-rate mortgages, variable credit card APRs, loans and interest rates in general, you should definitely try to take advantage of the falling prime rate situation to cut down on the amount of interest you have to pay for all the money you're borrowing. Try refinancing your loan or transferring your existing credit card balance to a low interest or 0% introductory APR balance transfer credit card.
For example, you might want to consider moving your existing credit card balance to a balance transfer credit card that offers 0% introductory APR on balance transfers for a certain number of months or billing cycles. Thereafter, a variable APR will apply, based on your credit worthiness. This move in itself will help you cut down on the amount of interest payment you have to pay to your credit card issuer, however, keep in mind whether or not you get to take advantage of the 0% introductory APR is up to your credit card issuer's discretion.
Usually, there's a balance transfer fee involved, too. So take that into consideration as well. Say, if you have excellent credit and you would like to transfer your balance to enjoy 0% introductory APR on your balance for a certain period of time, definitely make it a point to pay off everything before the introductory period comes to an end. You will also have to make minimum payments monthly.
Bottom line: A shift in the Fed rate hence prime rate will have an impact on how much consumers pay in interest for the money they borrow, when their interest rate moves in tandem with the prime rate.