Here’s what a Fed rate cut would mean for your credit card debt


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Paying off your credit card debt is about to get cheaper. The Federal Reserve, the central bank of the U.S., cut its benchmark interest rate for the first time since 2008 in the wake of the Great Recession.

The Fed controls short-term interest rates, with long-term interest rates controlled by banks and the bond market. Short-term interest rates impact how much it costs to borrow.

If credit card issuers lower their rates as a result of the Fed’s July 2019 meeting, you could pay less in interest each month on your outstanding credit card balances.

Now, more than ever, is the time to tackle your debt. But before you can get started, you’ll need to identify how much you owe and prepare a budget.

Set a budget

Having a firm understanding of your debt and how much you can afford to pay off each month is crucial to the payoff process.

“The first step is to recognize (your debt) and commit to it,” says Darren Straniero, financial planner for OnPlane Financial Advisors. “Once that’s established and there’s a true desire to eliminate the debt, then it becomes a matter of executing.”

Bankrate offers a credit card payoff calculator that takes your balance, interest rate and payment per month/desired months to payoff into account. With this tool, you can determine a reasonable timeframe for completing your debt payoff.

Once you have the details of your debt squared away, prep your finances for a tighter few months.

“Take it one step at a time and be careful not to focus so much on paying down credit card debt that other areas of your budget suffer,” says Jason Speciner financial planner and founder of Financial Planning Fort Collins.

Determine a payoff method

After you’ve set a budget for yourself, you can then look into the best debt payoff method for your lifestyle.

Straniero suggests the snowball method, meaning you put the largest amount of money toward the lowest amount of debt you have and continue making minimum payments on your other accounts. Once the smallest chunk of debt is paid off, you can move on to the next smallest amount.

Kyle Hill, financial planner at Hill-Top Financial Planning, also backs the snowball method, citing a 2012 study by researchers at the University of Northwestern. According to the study, consumers who tackled smaller debts first were more likely to completely eliminate their debt compared to other payoff methods.

“I follow this method because it is behavior-based rather than numbers-based,” says Hill. “People need to see that their plan is working in order to stick with it.”

Consider a balance transfer card

Before you settle on a payoff method, you may want to consider a balance transfer card to help you transfer and consolidate your debt.

You can choose from cards with or without annual fees that offer introductory zero percent APR periods. You will, though, most likely owe a balance transfer fee no matter which card you choose.

We recommend looking for a balance transfer card that can benefit you long after you’ve paid off your debt. In other words, look for a card that offers rewards on spending you do every day. The Capital One® Quicksilver® Cash Rewards Credit Card offers a zero percent introductory APR for 15 months on both purchases and balance transfers (15.49% – 25.49% variable APR).

If you had $3,000 in debt, for example, and transferred it to the Quicksilver, you could pay $200 a month to wipe out your debt without paying anything in interest. Keep in mind the Quicksilver charges a 3 percent balance transfer fee, meaning you’d owe an additional $90.

The Quicksilver will also get you an unlimited 1.5 percent cash back on every purchase, plus a $150 cash bonus when you spend $500 in your first three months. In other words, this card will most likely be useful to you after your debt is paid off.

Make extra money elsewhere

To keep from missing any monthly payments due to a lack of funds, consider looking for additional money-making opportunities in your life.

“Drive for Uber/Lyft. Pick up a gig waiting tables or bartending. Find online jobs. Sell items in your house or offer to sell items for friends and family and take a percentage,” Straniero says.

Making a little money on the side to put towards debt payoff will not only speed up the payoff process but hopefully keep you from doing any unnecessary spending in the meantime.

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