It’s Prime Time to Review Your Interest Rates

On Wednesday, Dec. 14, 2016, the prime rate increased as a result of the Federal Reserve Open Market Committee actions. The prime rate is the rate banks typically charge their most credit worthy customers, and is used to determine rates on consumer loan products such as credit cards or auto loans. This means that products with a variable interest rate will see an increase in rates. If you have a fixed rate, the prime rate increase will not impact your existing product.

What does this mean for USAA members? Unless you have a significant amount of variable rate debt, the impact should be minimal. On your January statement, you will see an increase in the amount of interest, which will increase the minimum payment on your USAA credit card. Over the next couple of months, you can also expect to see an increase in fixed rates for any new loans you take out. On a positive note, it is also possible that deposit rates could increase slightly.

How can you decrease the impact of changing interest rates?

  • Pay off credit card balances in full each billing cycle. The interest rate is irrelevant if you never have to pay it.
  • Look for options to consolidate variable rates into a fixed rate. USAA Bank offers fixed rate personal loans. You can use the Personal Loan Calculator and the Debt Consolidator Tool on the page to see if it makes sense for you.
  • Consider consolidating variable rate student loans to a fixed rate. For federal student loans, visit the student aid website¬†to learn more about your options. Before making the decision to consolidate, be sure to consider any loss of benefits from the original loan. For private student loans, contact your lender to discuss options.
  • If you are planning to make a major purchase, such as a vehicle, now may be the time to move. As long as you can afford the payment and other associated costs, such as insurance and gas, then buying before rates increase could save you money.
  • Stick to a budget. Those most impacted by an increase in the prime rate typically carry a significant amount of variable-rate debt. Following a budget¬†can help you avoid overextending yourself and getting into a financial bind.

Rates may be increasing, but they are still far below what we have seen in the past (13% in 1984). Following sound money management principles can help reduce the impact and alleviate the stress associated with increasing rates. USAA is here to help.


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