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Does cooling inflation mean credit card debt will become cheaper soon?

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Credit card rates could fall soon, but it depends on a few different factors.  Srdjan Pavlovic / Getty Images

If you have credit card debt that you carry from month to month, you may have noticed that your minimum payments are higher today than they were in the past — even if you've maintained a relatively static balance. Those higher payments are the result of higher interest rates

Right now, the federal funds rate, which is the benchmark rate that consumer interest rates are based on — is paused at a 23-year high as the Federal Reserve tries to temper the ongoing issues with inflation. And, that means the interest rates on everything from personal loans to credit cards are elevated. But recent data shows that inflation is cooling, so will your credit card debt become cheaper soon? 

Find out how a debt relief service can cut the cost of your debt today

Does cooling inflation mean credit card debt will become cheaper soon?

So, will your credit card debt become cheaper now that inflation is cooling?

"Keeping inflation at the target 2% level is one of two mandates the Fed follows," says Dan Casey, investment advisor and founder of Bridgeriver Advisors, a financial planning firm. "If inflation cools, the Fed will most likely lessen the current restrictive rate policy by decreasing the Fed Funds Rate. This should have a trickle-down effect causing other rates, such as credit cards, to decrease as well."

That doesn't mean substantial credit card interest rate reductions will happen soon, though. For starters, the current inflation rate is still higher than the Fed's 2% target rate. And while it's cooling, inflation was at 3.3% in May, according to the latest data. So, inflation may need to cool even further before the Fed cuts rates.  

And, when the Federal Reserve does make cuts to its federal funds rate, it will likely do so in small increments. So, even if the Fed opts to slash rates soon, it could take a while for card rates to drop enough to result in substantial savings. So, if you need relief from high-interest credit card debt, waiting for rates to drop may not be the best plan. Luckily, there are other options you can pursue instead.

Don't wait for rates to fall to get the relief you need

Credit card debt relief options to consider now

If you're trying to get relief from high-interest credit card debt, here are a few options to consider now: 

  • Credit card debt settlement: Credit card debt settlement companies may be able to settle your debts for less than you owe by negotiating a lump-sum payment that's lower than your current credit card balance. Though this type of service can have a detrimental impact on your credit score, it can also result in significant savings. 
  • Credit card debt management: Debt management services may be able to negotiate lower interest rates on your behalf and help you more effectively manage your debts. This may be a good option if you're able to make your minimum payments but are having a hard time paying off your full balance. And, while there may initially be a negative impact on your credit score due to potential account closures, your credit may improve as you make your payments over time. 
  • Credit card debt consolidation: With debt consolidation, you'll take out a new loan to pay off your high-interest credit card debt. The new loan typically has a lower interest rate compared to your credit cards, which can reduce the cost of your debt.  

The bottom line

If the Federal Reserve does cut rates in response to cooling inflation, it could reduce the cost of your credit card debt. However, there's no guarantee that a rate cut will happen in the near future, and if it does, it could take a while for it to impact the cost of your credit card debt. If you need help with your credit card debt now, consider reaching out to a debt relief expert to discuss your options

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