The new year may bring higher interest rates that could increase credit card debt for many Americans.
“If the Fed is going to raise rates another 100 basis points, one full percentage point, your credit card rate is going to go up one full percentage point," Bankrate.com Chief Financial Analyst Greg McBride told Yahoo Finance Live (video above). "So this is really important. If you're carrying a balance, now's the time to take some action."
He advises credit card holders to increase their payments as soon as possible and search for a 0% balance transfer card, that offers no interest on transferred balances for a set period, typically six to 18 months.
“Grab one of those low rate balance transfer offers, turbocharge your debt repayment efforts because the most expensive debt you have is going to continue to get more expensive," McBride said. "And it's going to move in lockstep with whatever the Fed is doing.”
McBride said that a good credit score will also be crucial this year when making major purchases like cars. He predicts auto loan rates will rise to 6.9% for new cars and 7.75% for used vehicles.
“Your credit rating is going to become even more important, particularly if we start to see the economy weaken," McBride said. "That's going to be the difference between paying 7% or paying a rate that could be double that."
While auto loan rates may climb, McBride said that the increase won’t be enough to dissuade potential car owners from buying vehicles.
“It's not the headwind I think that a lot of people think it might be. Now auto loan rates, another percentage point of rate hikes makes a difference of about 25 bucks a month on the payment, but that's $25 on what's already an $800 payment. Is anybody going to downsize from the SUV to the compact based on rising rates? Probably not,” said McBride.
McBride told Yahoo Finance Live that there’s one crucial step to keep in mind no matter how high credit card and auto loan rates rise.
“The key thing for borrowers here— make sure your credit is in good shape and shop around,” McBride said.
Ella Vincent is the personal finance reporter for Yahoo Money. Follow her on Twitter @bookgirlchicago.