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Credit card debt could become costlier

Many people in Virginia and across the country are struggling with overwhelming debt, especially as credit card fees and interest rates mount. In March of 2018, the U.S. Federal Reserve announced an increase in the federal funds interest rate from 1.5 percent to 1.75 percent. Even though this rate is not a consumer rate and reflects a bank-to-bank lending rate, it is used as a benchmark for consumer loans, credit accounts and even savings accounts. An increase in the federal funds rate means that interest rates on consumer debt rise as well.

Because credit cards often have a variable interest rate, the escalating fed funds rate can be reflected in credit card rates, making it more expensive to carry credit card debt from month to month. Because credit cards use compound interest, a person's existing balance can also become costlier. The Federal Reserve itself noted that average interest rates for credit cards sat at 15.32 percent APR in February 2018, an increase from 14.99 percent in November 2017.

The Federal Reserve tends to increase the federal funds rate at times of overall economic growth and lowered employment. It is meant to help discourage inflation, especially when wages and prices show signs of increases. Some experts have said that the rate could rise on three or four occasions during 2018 for an overall increase of around 1 percent. For consumers, paying off the credit card balance in full each month can help to avoid paying more.

However, for people who were already struggling with late fees and collection calls, the interest rate hike can be particularly troublesome as it makes existing unpayable debt even more expensive. Many people may find debt relief from insurmountable debt through declaring personal bankruptcy. A bankruptcy lawyer may advise people of the different options available to them and the long-term effects of bankruptcy on debt and credit.

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