Rising interest rates have become the focal point of many recent conversations about credit cards. For consumers who carry balances on their credit card(s), such conversations are often filled with disgust, anger, and confusion. You may be wondering why credit card rates are rising and what, if anything, that you can do to avoid higher rates. We hope that the following tips will help you gain a better understanding of interest rates, specifically variable and fixed interest rates. We place a high priority on educating consumers about such important issues. An uninformed consumer, after all, is a powerless consumer.

Why are credit card rates rising? To understand the answer to this question, one must first understand how the Federal government affects interest rates. On May 16th, the Federal Reserve Board raised the discount rate by 50 basis points or 0.50% Raising the discount rate - the rate the Federal Reserve charges a bank to borrow funds when the bank is temporarily short of funds* - has become a trend as of late and most authorities feel that further rate increases are likely in the near future. As you might expect, when the Federal Reserve raises the discount rate, banks pass this increase on to consumers. With credit cards, this is typically accomplished by raising the prime rate. The prime rate is the most favorable interest rate charged by banks on short term loans*. The current prime rate is 9.50%**.

What is the difference between variable rate and fixed rate credit cards? A variable rate card is directly tied to the prime rate. Thus, when the prime rate is raised by 0.50%, the interest rate of a variable rate card subsequently rises by 0.50%. Credit card rates are usually higher than the prime rate. The difference between the prime rate and the actual rate of a given card is called margin. A fixed rate card, however, is not tied directly to the prime rate. Thus, when the prime rate rises or falls, the interest rate of a fixed rate card usually stays the same (see fixed rate warning below!).

Please be aware that there is "no such thing" as a truly fixed rate card! This is a common misunderstanding among cardholders. The rates of all fixed rate cards can still increase periodically. Though fixed rate cards do not fluctuate as much as variable rate cards, they do fluctuate on occasion. For example, Fleet www.fleet.com recently raised the rate on their lowest fixed rate card from 7.9% to 9.99%. Also, be aware that fixed rate cards can change to variable rate cards. Discover www.discovercard.com, for instance, recently instituted such a change that affected some of its cardholders.

How can you avoid higher credit card rates? Without a doubt, this question is the most common question raised by consumers. This is not surprising, since rising rates can result in significantly higher finance/interest charges. Our advice... first view our "Low Rate Report" if you have not done so already.

Please note, though, that low rates are only offered to consumers with "great credit". Finally, consider taking advantage of a introductory rate offer. You can find a current list of transfer offers by visiting our "Balance Transfers" page. Some rate offers remain in effect for an entire year. Good luck!

* Source: The Washington Post www.washingtonpost.com
** Source: BankRate.com www.bankrate.com

Courtesy of www.CardRatings.org. CardRatings.org features an independent, free consumer credit card ratings report which compares credit card interest rates, fees, benefits, rewards, rebates, annual fees, etc! The report is compiled by the consumer credit organization Citizens for Fair Credit Card Terms (CFCCT). CFCCT is entirely devoted to credit card research.

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"The Dollar Stretcher, Inc." does not assume responsibility for advice given. All advice should be weighed against your own abilities and circumstances and applied accordingly. It is up to the reader to determine if advice is safe and suitable for their own situation.

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