Next year [2015] could be even more expensive for anyone carrying credit card debt.As you better know by now, the interest you are charged on an unpaid credit card balance is tied to any movement in whatever benchmark index or rate the card issuer uses. Many credit cards use the prime rate (the lowest rate of interest at which banks lend money) as their benchmark. Since December 2008, the prime rate has been stuck at 3.25 percent.
That's all about to change.
What you need to understand is that the prime rate is itself tied to the federal funds rate. That's the interest rate controlled by the Federal Reserve and, if you've been following things lately, you know the expectation is that—for the first time since the financial crisis—the Federal Reserve will raise the federal funds rate in 2015. Not a lot, but it will go up.
My friends, when that happens, the prime rate will rise too, and that will trigger increases in the interest charged on credit card balances.
As part of its work checking on the health of our big banks post-crisis, the Federal Reserve issues a periodic stress test of banks' financial health. As part of that stress test the Fed has to make some interest rate and economic assumptions about what may happen in the future. In its most recent "baseline" scenario—that is, if things go as expected with no big shocks to the system—the Fed expects the prime rate to rise to 4 percent by the end of 2015, and estimates it could reach 5.4 percent by the end of 2016. That guarantees the interest rate on your credit card debt is heading higher.
Suze Orman is a award winning certified financial planner and author of several books including 'The Road to Wealth'. She went from being a waitress at age 30, making $400 a month, to now having her own TV show and a net worth of $30 million dollars.
