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On the eve of the Christmas season, there is nothing more tempting than a credit card. This noble artifact allows us to divide the total price of what we want to buy over several months, significantly decreasing the danger to our pocketbook, at least in the short term. However, as the Federal Reserve raises interest rates, there is increasing danger attached to using a credit card.
The interest rate increase directly affects the loans offered by banks, since the Fed interest rate alters the banks’ interest rates. If the aforementioned agency decides to increase interest rates, the banks will do the same with their loan rates. In fact, the average rate is 26.72% and the highest rate is 30.74%.
Speaking to CNBC, Ted Rossman, senior analyst at CreditsCards.com, said that this is a “crazy high” figure. Therefore, at a time when moderation and sanity are the exceptions when it comes to purchases, it is necessary to take certain precautions when acquiring a credit card.
On the other hand, Matt Schulz, chief credit analyst at Lending Free indicated that “given how quickly the Fed has raised rates and how often, we’re starting to finally see that ceiling crack a little bit.”
As an aggravating factor, high inflation and the upcoming holiday season may act as an incentive to purchase with credit cards, making the situation a bit more complex. According to a Lending Tree survey, 35% of respondents acknowledged that they were “somewhat likely” to try to acquire a credit card before the holidays.
What if I already have a credit card? Keys to good management
According to Schulz, the main key is not to have unpaid debts and, if so, to get rid of them as quickly as possible.
On the other hand, the analyst also recommends being well-informed before acquiring this seductive means of payment. “It’s really important that you understand what you’re getting into before you apply,” he said.
The last caution to keep in mind involves deferred interest. “Deferred interest credit cards offer a special promotion where you pay no interest for a short period of time (usually 6 to 12 months). This usually happens with retail store credit cards. However, this is not the same as a 0% APR introductory period on a regular credit card,” said Consolidated Credit.
“The difference is that, with deferred interest, you pay retroactive interest at the end of the promotion period. Basically, with deferred interest, you will want to pay it all off before the end of the promotion,” they added.
Joaquín Núñez es hincha de Racing Club de Avellaneda y licenciado en comunicación periodística por la Universidad Católica Argentina. Se especializa en el escenario internacional y en la política norteamericana // Joaquín Núñez is a fan of Avellaneda's Racing Club and has a degree in journalistic communication from the Universidad Católica Argentina. He specializes in the international scene and American politics.