New Year, New Budget

How to Combat Inflation & Rising Credit Card Rates

It’s pretty safe to say that everyone has felt the effects of inflation at this point. While some inflation is good for the economy, such a dramatic rise in a short period continues to send prices soaring. To stop the climb, the Federal Reserve continues to raise the federal funds rate – a move that further hits consumers’ wallets.

Many people are turning to credit cards to help manage rising prices and make ends meet. Unfortunately, moves by the Federal Reserve are causing credit card rates to spike – giving people a double punch right in the wallet. Rising prices plus rising interest rates can create a costly debt spiral that’s difficult to escape. is through a balance transfer. But before you start transferring money, it’s important to understand why credit card rates are rising.

Understanding Variable-Rate Credit Cards

Nearly all credit cards today have variable interest rates. This means that the interest rate can fluctuate with the economy. Lenders use variable rates as a means to protect themselves from sudden shifts in the financial landscape – like what is happening right now.

Most credit cards are based partly on the Prime Rate. When the Federal Reserve raises the federal funds rate, the Prime Rate typically follows suit. So, what does this mean to you?

When you open a new credit card, the interest rate will often be expressed as Interest Rate + Prime Rate. For example: 12.99% APR + Prime Rate. Most people will focus on the 12.99% APR and assume that’s their rate, but it’s incorrect.

Let’s look at two different time periods as an example of what’s happening.

3/16/2020 Prime Rate = 3.25% Example: 12.99% APR + 3.25% = 16.24%

9/22/2022 Prime Rate = 6.25% Example: 12.99% APR + 6.25% = 19.24%

You can see that the Prime Rate has increased by 3.00% since March 2020. This means most credit card rates are now up 3.00% APR as well. And with the Federal Reserve likely to continue raising rates, credit card purchases will become even more costly.

Using a Balance Transfer Strategically

While you can’t stop prices from rising, you can relieve yourself from excessively high credit card rates. One effective tactic is to use a balance transfer.

A balance transfer allows you to move your current credit card balance from one or more high-interest credit cards to a new credit card, typically with a much lower interest rate. The goals when using a balance transfer are to reduce the amount of interest you pay and make your existing debt easier to manage. Here are several tips to consider when using a balance transfer:

• Find the Lowest Interest Rate: Your priority should be to find the lowest interest rate possible on your new credit card. That might mean forgoing extra perks, such as rewards, and that’s ok. • Identify Hidden Fees: While finding a credit card with zero balance transfer fees is pretty easy, these costs are still common. If you’re taking advantage of a promotional offer, you’ll likely encounter some sort of fee. You want to ensure the balance transfer fee doesn’t set you back even more. Remember, your goal is to reduce your debt, not add to it. • Create a Plan: Once you perform your balance transfer, you want to create a plan to pay off your outstanding debt. If you’re using a promotional offer, you want to ensure your debt is repaid before the promotional period ends. Even when money is tight, it’s wise to chip away at your balance whenever possible. • Limit Future Spending: When prices continue to rise, it’s hard not to rely on your credit cards.

But you never know what the economy will look like six months down the road. Interest rates will likely be even higher, and prices might follow suit. It’s better to view your credit card right now as more of a backup for emergencies than for everyday spending.

*Credit card approval depends on applicant’s creditworthiness and other qualifications. APR (Annual Percentage Rate), terms, and conditions are subject to change at any time. APR is based on the applicant’s creditworthiness and will vary with the market based on the Prime Rate. Earn 3 Rewards points per $1 spent on Amazon.com™ from 10/1/2022 (or the date on which you activate your Rewards Credit Card, whichever is later) through 12/31/2022. 4.99% APR applies only to purchases made on Amazon.comTM charged to your Freedom First Platinum Visa credit card between 11/1/2022 and 12/31/2022 and will continue at this promotional rate until the principal on those charges are paid. All other charges will be at your regular prevailing APR. Amazon.com purchases include those made through the Amazon.com checkout, like digital downloads, Amazon.com gift cards, Amazon Fresh orders, Amazon Local Deals, Amazon Prime subscriptions and items sold by third party merchants through Amazon.com’s marketplace. Also includes in-store at Amazon Go, Amazon Bookstore, and Amazon 4-Star. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by Freedom First Credit Union. Contact Freedom First Credit Union at (540) 389-0244 for additional information on all of our loan products. www.Roanoke.Family • January 2023 19

Rachel’s Reads

By Rachel Levine Animal shelters have seen a dramatic increase in pet adoptions since the beginning of the COVID. Many families are looking to add a little joy and a new furry family member to love fits the bill. Whether you have a snuggly pet at home, or a pet rock is a better fit for your family, here are some fun pet themed books to share with your kiddos.

Children Make Terrible Pets

by Peter Brown

Have you ever seen a bunny rabbit or pretty bird outside and wished you could take it home? Now imagine a bear cub saw a human child and decided to keep that child as a pet! In this story a well-meaning bear cub soon realizes she has bitten off more than she can chew. It turns out human children are nice to cuddle with, but very challenging to potty train. Children Make Terrible Pets is sure to spark lots of giggles, and reminds us that wild animals (including children) do not make good pets!

Walter the Farting Dog

by William Kotzwinkle and Glenn Murray

Warning: This story is only for families who LOVE fart jokes. Betty and Billy’s family have adopted a dog named Walter. They love Walter to pieces, but there is a problem. Walter farts. In fact, Walter farts A LOT. Eventually Betty and Billy’s dad says he can’t take the smell anymore and they need to return Walter to the animal shelter. The children are distraught. Thankfully, Walter’s farts make him an extremely effective guard dog and he saves the day. Check out Walter the Farting Dog to get the full (smelly) scoop!

James Herriot’s Treasury for Children

by James Herriot

James Herriot wrote marvelous stories inspired by his time as a rural veterinarian in England in the 1930’s and 1940’s. His eight children’s stories have been collected into a treasury that will warm your heart. Friendship, kindness, and a love for animals fills these tales of a sow who adopts a kitten, a dog who never barks, a cat with a very busy social schedule, a dearly beloved horse, and many more.

James Herriot’s Treasury for Children is a book you will cherish and save to read with your grandchildren too.

Charlotte’s Web

by E.B. White

Wilbur is a friendly and cheerful pig. His biggest priorities are spending time with his young owner Fern, eating, and getting to know the other animals in his barn. One day Wilbur is devastated to discover that he is meant to become dinner. His friend Charlotte (who happens to be a very well-spoken spider) comes up with a brilliant scheme to save Wilbur and keep him as the family pet. The story of Charlotte’s Web is a classic for a reason. This marvelous tale of true friendship will stay with your family long after you have read the last page.

Mr. Popper’s Penguins

by Richard and Florence Atwater

Mr. Popper is obsessed with all things Antarctic, but especially penguins. One day, to Mr. Popper’s glee, a penguin arrives at his house in a large wooden box. A small house in a temperate climate is not a very practical place for a pet penguin. Mr. Popper and his family have to quickly adapt their home to make it a suitable penguin habitat. As you can imagine, all sorts of fabulously ridiculous hijinks occur along the way. Mr. Popper’s Penguins is a delightful romp, especially perfect for a snowy day!