We don’t know for certain what a Donald Trump presidency will mean for access to and regulation of credit cards, but there may be a change coming before he even takes office.
Interest rates could rise.
The Federal Reserve next month is expected to consider an increase in short-term interest rates.
The CME Group, which publishes a FedWatch Tool, suggests a 76.3 percent probability the Federal Open Market Committee will raise rates during its December meeting. That’s a higher probability than before the election. If that happens, you should expect your credit card issuer to follow with higher interest rates.
That’s what happened last time the Fed increased rates in December 2015. Banks responded immediately by hiking the prime rate — that’s the index used to set variable interest rate credit cards –from 3.25 to 3.5 percent.
If a rate hike occurs next month, it could impact credit card statements as soon as January — when all that holiday spending hits consumers’ monthly statements.
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What a rate hike means
For most consumers, a quarter percentage point rate hike — based on the likely Fed increase — won’t have much of an impact.
In September, the credit bureau TransUnion estimated the average monthly payment on credit card, home equity and other adjustable interest rate accounts would increase by $6.45.
Even so, millions of Americans will see monthly payments increase by $10 to $50 or more. Many will have trouble keeping up, TransUnion found.
What’s more, the Fed is unlikely to stop at just one rate increase, although it has pledged to move rates gradually. A one percentage point hike, even if it’s spread out over time, would mean that 12 percent of consumers eventually will have minimum monthly payments increase by $50 or more.
Things you can do
If you expect what TransUnion calls a “payment shock” in case of a rate hike: Here are 3 things to consider doing now:
- Consolidate your credit card debt with a balance transfer. This involves opening a new credit card and moving the balances from your existing cards to it. You’ll need to find a card that offers a low transfer fee, typically around 3% of the balance, and a zero percent introductory offer for a year or longer. If you can’t pay off your debt before the end of the no-interest period, a balance transfer isn’t right for you.
- Consolidate your credit card debt with a personal loan. Unsecured personal loans come with a fixed interest rate, a fixed monthly payment and an end date. Pay your bill on time every month and you can be assured you’ll have rid yourself of this debt when the final payment is due. Just don’t add additional debt in the meantime.
- Find a fixed-rate credit card. This is easier said than done, but some smaller institutions still offer credit cards not tied to an index. This likely won’t help you with existing debt, but it could mute the impact of future rate hikes on new credit card spending. Federal law prohibits an issuer from hiking interest rates on a fixed-rate card within a year of the card’s opening. Once that period expires, an issuer must give you a 45-day heads-up if it plans to increase rates.
Long-term election implications
Trump’s presidency could have implications for credit card holders, we just don’t yet know how.
He has vowed to dismantle the Dodd-Frank Wall Street Reform Act, which, among other things, created the Consumer Financial Protection Bureau.
Although Trump has been vague on specifics, such a move could roll back some consumer protection reforms.