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How rising interest rates could impact credit cards, home and car financing

Can a credit card company lower my credit limit?
Posted at 7:03 PM, Mar 16, 2022

CINCINNATI — People with credit card debt should prepare to pay more after the Federal Reserve raised interest rates Wednesday.

With inflation soaring to its highest level in 40 years, the Fed authorized a .25% interest rate increase with projections for six more hikes by the end of 2022.

"Oh my God, I don't know what to do," said Courtney Smith of Madisonville.

The move could ease inflation costs crippling Smith's life or make the mom who is physically unable to work or afford soaring rent suffer more.

"In two weeks, if I don't have the keys to (a new) place, I lose the Section 8 voucher," Smith said. "Waking up every morning and being not sure, that's a scary thing. My anxiety is horrible. I feel like I'm going to be out here sleeping behind somebody's building, on a bench or something like that because they don't have anything or no ways I could possibly get myself out of that."

Economists expect the move to slow spending and help the overall supply of goods catch up with demand. That will bring more expensive home and car financing.

"If you're looking for a house, maybe you look for a little bit of smaller, cheaper house because your financing costs have come up," said Ben Ayers, senior economist for Columbus-based Nationwide Insurance. "The same thing from a car perspective. It just forces many consumers to have to shift in where they're looking to spend."

The biggest impact, though, may come through the plastic in everyone's wallet.

"Where you see the bigger impact will be on credit card debt," said Janet Harrah, senior director for the Center for Economic Development and Business Research at Northern Kentucky University. "We've had almost a zero interest rate environment for some time now, but we're still paying 7-8% on our credit cards. So, as the federal reserve structure raises interest rates, you will see the interest rates on your credit cards rise as well."

While Federal Reserve Chairman Jerome Powell insists a recession is "not likely," changing rates too fast and raising them too high carries that risk.

However, if all goes according to the Fed's plan, Smith's struggles should ease even if she has doubts.

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