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Owe money on your credit card? Here’s how a Fed rate cut could impact your payments.
Thanks to the double-whammy of inflation and higher interest rates, Americans have amassed a $1.1 trillion mountain of credit card debt. Borrowers who are carrying balances may soon get some modest relief if, as widely expected, the Federal Reserve on Wednesday moves to lower interest rates for the time since 2020.
On September 18, the central bank is expected to reduce its benchmark rate, which stands at its highest point in 23 years. Although economists agree that the Fed will reduce rates this week, experts are mixed on whether Fed will kick off a cycle of monetary easing with a 0.25 percentage point cut or a larger 0.5 percentage point reduction designed to guard against recession risks, according to financial data firm FactSet.
Millions of consumers have racked up credit card debt in recent years as more families have relied on plastic to pay for household expenses amid price increases for everything from groceries to rent. While inflation has now cooled to below 3% on an annual basis, people who are carrying credit card balances are getting socked by historically high annual percentage rates, which make it harder to dig out from debt.
The average APR on a new credit card offer now stands at 24.92%, the highest since LendingTree began tracking new rates in 2019, according to the financial services site.
About 4 in 10 Americans carry a credit card balance, according to data from the Federal Reserve. The average balance is about $6,900, LendingTree says.
Because credit card rates generally track the federal funds rate, a a Fed cut on Wednesday will eventually trickle down and could result in lower APRs for people who carry balances. But borrowers should keep their expectations in check because a 0.25 or 0.5 percentage point cut won’t make that much of an immediate difference, according to LendingTree chief credit analyst Matt Schulz/
“While lower rates are certainly a good thing for those struggling with debt, the truth is that this one rate cut isn’t really going to make much of a difference for most people,” Schulz said in an email to CBS MoneyWatch.
Difference between a 0.25 and 0.5 percentage point cut
Take someone with a $5,000 balance on a credit card with a 24.92% APR. Assuming payments of $250 each month, it would take the person 27 months to pay off the balance and cost an additional $1,528 in interest, Schulz noted.
- If the credit card issuer reduces its APR by 0.25 percentage points, to 24.67%, the borrower would still need 27 months to pay down the bill, but the interest would be $1,506 — a savings of $22 over that period, or less than $1 a month.
- If the issuer cut the rate by 0.5 percentage points, it would take 26 months to pay off the balance and cost $1,485 in interest. That would save a month of payments but also reduces the interest costs by $43, or about $1.50 a month.
The bigger impacts may come later in the year or in 2025 given that the Fed is expected to continue cutting rates into next year. Many economists are forecasting the federal funds rate will drop to 3% to 3.5% by May 2025, or more than two percentage points lower than today.
In the meantime, Schulz recommends that consumers “take matters into their own hands.” For instance, people with credit card debt can consolidate their debts with a 0% balance transfer card, or look into a personal loan, which typically has a much lower rate than credit cards.
“When looking for a new loan, shopping around and comparing rates from multiple lenders can lead to big savings, too,” Schulz said. “It is all absolutely worth your time.”
TRENTON, N.J. — Democratic Newark City Council President LaMonica McIver has defeated Republican small businessman Carmen Bucco in a contest in New Jersey’s 10th Congressional District that opened up because of the death of Rep. Donald Payne Jr. in April.
McIver will serve out the remainder of Payne’s term, which ends in January. She and Bucco will face a rematch on the November ballot for the full term.
McIver said in a statement Wednesday that she stands on the “shoulders of giants,” naming Payne as chief among them.
She cast ahead to the November election, saying the right to make reproductive health choices was on the ballot as well as whether the economy should benefit the wealthy or “hard working Americans.”
“I will fight because the purpose of politics and the purpose of our vote is to give the people of our communities and our nation a bold voice,” she said.
Bucco congratulated McIver on the victory in a statement but said he’s looking forward to the rematch in November.
“I am not going anywhere,” he said in an email. “We still have a second chance to make district 10 great again!”
Who are LaMonica McIver and Carmen Bucco?
McIver emerged as the Democratic candidate in a crowded field in the July special election. A member of the city council of New Jersey’s biggest city since 2018, she also worked for Montclair Public Schools as a personnel director and plans to focus on affordability, infrastructure, abortion rights and “protecting our democracy,” she told The Associated Press earlier this summer.
Bucco describes himself on his campaign website as a small-business owner influenced by his upbringing in the foster system. He lists support for law enforcement and ending corruption as top issues.
The 10th District lies in a heavily Democratic and majority-Black region of northern New Jersey. Republicans are outnumbered by more than 6 to 1.
It’s been a volatile year for Democrats in New Jersey, where the party dominates state government and the congressional delegation.
Among the developments were the conviction on federal bribery charges of U.S. Sen. Bob Menendez, who has denied the charges, and the demise of the so-called county party line — a system in which local political leaders give their preferred candidates favorable position on the primary ballot.
Democratic Rep. Andy Kim, who’s running for Menendez’s seat, and other Democrats brought a federal lawsuit challenging the practice as part of his campaign to oust Menendez, who has resigned since his conviction.
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Sean “Diddy” Combs at same Brooklyn detention center that held R. Kelly, Sam Bankman-Fried, other high-profile inmates
A second judge refused to grant bail to Sean “Diddy” Combs on Wednesday and he could remain in federal custody at a Brooklyn detention center until his trial for sex trafficking charges. Combs joins other high-profile inmates, such as singer R. Kelly, fallen cryptocurrency mogul Sam Bankman-Fried, rapper Ja Rule —even Al Sharpton served a brief stint— who were held at the same federal detention center.
Notorious for its horrible conditions —inmates won a $10 million class action settlement after enduring frigid conditions during an 8-day blackout in 2019— the waterfront industrial complex, MDC Brooklyn, houses 1,200 inmates.
JOHANNES EISELE/AFP via Getty Images
Violence and corruption have long plagued the facility; U.S. District Judge Gary R. Brown of the Eastern District of New York wrote the detention center had “dangerous, barbaric conditions” in a recent sentencing opinion. Two inmates were stabbed to death in recent months and several correction officers have been convicted for smuggling contraband and accepting bribes.
Combs joins a list of high-profile personalities that have landed at the MDC Brooklyn, partly because the city’s other federal detention center, MDC New York, closed in 2021, also due to horrible conditions. The disgraced financier Jeffrey Epstein died by suicide in his cell there in 2019. “Numerous and serious” instances of misconduct among corrections staff gave Epstein the opportunity to kill himself, a subsequent federal watchdog investigation found.
Kelly sued the federal detention center in 2022 for wrongly putting him on suicide watch after his sentencing. Kelly sought $100 million because he said the detention center knew he wasn’t suicidal after he was convicted in 2021 for racketeering and violating the Mann Act, which bars transporting people across state lines for prostitution.
Yuki Iwamura/Bloomberg via Getty Images
Former crypto billionaire Bankman-Fried survived on bread, water and sometimes peanut butter when he was in the MDC Brooklyn, his attorney said, because the detention center continued to serve him a “flesh diet” despite requests for vegan dishes.
Ja Rule stayed at the MDC Brooklyn for a brief time before being released after serving most of his two-year sentence for illegal gun possession. Most of his prison time was spent in a state prison in New York.
Sharpton served a 90-day sentence in 2001 and went on a hunger strike for protesting the U.S. Navy bombing of the island of Vieques, in Puerto Rico.
Combs was taken into custody on Monday and according to an indictment unsealed Tuesday he was charged with sex trafficking, racketeering conspiracy and transportation to engage in prostitution.
His attorney Marc Agnifilo told CBS News, “It’s impossible to prepare for a trial from where he is,” after a first federal judge denied Combs bail on Tuesday.
U.S. Magistrate Judge Robyn Tarnofsky agreed with prosecutors who argued the hip-hop mogul, who is accused of using his business empire as a criminal enterprise to conceal his alleged abuse of women, is a flight risk and poses an ongoing threat to the safety of the community.
Agnifilo said the part of the detention center where Combs is being held is “a very difficult place to be.”
contributed to this report.
