Interest rates are on the rise, which means it may get more expensive to use your credit cards. When the Federal Reserve raises interest rates, credit card APRs typically increase as well. This equates to more interest paid for credit card balances and is how rising rates can make your debt more expensive.

How does this work? Credit unions and other financial institutions use the federal funds rate as a base to set the prime rate, which is the rate they make available to the most qualified loan and credit card borrowers. Typically, when the federal funds rate rises or falls, the prime rate does as well.

Pay down credit card balances now

Avoid paying credit card interest completely by paying your credit card balance in full each month. If you don’t have the funds to pay the balance in full, then pay as much as possible. Keeping your balance low can help to reduce the impact of a credit card rate increase. There are two recommended ways to focus on paying down credit card debt across multiple credit cards.

1 The debt avalanche payment strategy

The first is called the avalanche method of debt repayment. The avalanche method targets debt with the highest interest rates first. It involves concentrating on paying off your highest-rate debt first, followed by the debt with the next highest interest rate, and so on. This method is smart for paying off credit card balances and can help you plan and eliminate those highest rate balances first. In the long run, it can save you a considerable amount in interest charges. Keep in mind while you are concentrating on the highest interest debt, you need to make at least minimum payments on your other debt.

2 The snowball method of paying off debt

Another popular method of multiple credit card debt repayments is the snowball method. This method focuses on paying down your smallest debt balance before moving on to larger debt balances. Once a balance is paid off, you take those funds and put them towards the next smallest balance. This continues until all debt is repaid. As mentioned above, although you focus on debt according to balance, you still need to make at least minimum payments on all others. Contrary to the avalanche method, the biggest disadvantage to the snowball method is the possibility of paying more interest over time. This is the result of focusing on debt by balance rather than the interest rate.

Refinancing credit card debt to a fixed-rate loan

By now we know that rising rates can make your debts more expensive, but these fluctuating rates don’t impact fixed-rate loans. Consolidating variable-rate credit card debt to a fixed rate personal loan or home equity loan at a lower fixed interest rate can help lower your monthly payment and save you money on interest over time. While rising rates can make your debt more expensive, refinancing credit card balances now to a lower fixed rate can help you plan ahead to combat expected rate increases.

To qualify for a lower interest rate, you need a good credit score and positive loan payment history. Always check your score before applying for refinancing. To view your credit score and review your credit history, you can request a free copy of your credit report through all three major credit bureaus on

Lenders will also look at your DTI (debt to income) ratio. This is your total monthly debt expenses divided by your total gross monthly income. DTI can show a lender whether or not you have the ability to make your loan payments. A high DTI shows you have a large amount of debt and may be a deterrent for lenders. A low DTI on the other hand shows a good balance between debt and income. Keeping your DTI ratio low helps ensure you can afford debt repayment and helps you qualify for credit.

Shop lenders to compare credit card refinancing options

Interest rates on personal loans and home equity loans typically vary from lender to lender. Some lenders even offer low-rate balance transfer credit cards to help you consolidate higher-interest cards. For example, when transferring balances to a Guthrie Community Credit Union VISA credit card, borrowers will benefit from no balance transfer fee, no annual fee, and a low non-variable rate. A fixed-rate personal loan is another option at Guthrie CCU, which enables you to combine the high-interest debt into one low monthly fixed-rate payment. For those looking to tap into the equity of their homes to consolidate debt, a fixed-rate home equity loan can provide much lower rates and no closing costs*.  Moving to any of these fixed-rate options can help protect you as variable-rate credit card interest rates rise. You can apply for a Guthrie CCU debt consolidation loan or fixed-rate credit card easily right online.

We hope this helps you better understand how rising rates can make your debt more expensive. To learn more, read our blog “What to Expect with Increasing Mortgage Rates” 


*Closing costs are waived unless the loan is discharged within 3 years of the origination date in which case you will be required to pay closing costs, which consist of the following: title search, flood determination, recording fees, and appraisal. Subject to membership, credit, and property approval. New York State mortgage taxes do apply. Some restrictions apply.