How Interest Rates Affect Your Debt Settlement Clients' Credit Card Debt

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August 16, 2018 | By RGR Marketing Blog

Rising Rates and Their Effect on Consumer Debt

If you’ve been paying attention to the financial news over the past few years, or even the past few months, then you’ve probably noticed that the Federal Reserve Bank keeps raising interest rates. And, if you know anything about financial markets and the banking system, then you probably know that the Federal Reserve raising its interest rates has some impact on the economy and interest rates in general.

But, unless you’ve been paying close attention to how interconnected everything is, you may not realize how what the Federal Reserve does may directly affect your current and prospective debt settlement clients—not to mention when changes in the Federal Reserve Bank’s interest rate are likely to impact your current and prospective clients.

How the Federal Reserve Rates Affect Your Client’s Debt

If the question is: “What does the Federal Reserve Bank’s lending rate have to do with consumer debt?” Then the answer is: “Quite a bit, actually.” The Federal Reserve rate is the rate that Federal Reserve Banks charge banks and other lenders to borrow money to extend credit to consumers. As the federal rate goes up, banks are quick to pass along the rise in rates to consumers, often without notifying them—per their agreements with borrowers.

Car loans and adjustable rate mortgages are generally affected. But, the biggest increase is usually seen in unsecured debt, namely credit cards and lines of credit. The ripple effect that the Federal Reserve’s raising of rates can have on your client’s credit card debt usually only takes a couple of months to be expressed.

Federal Reserve Rate Hikes Over the Past Two Years

The history of the Federal Reserve Bank’s lending rates has been relatively stable since the 1970s when they reached all-time highs in misguided attempts to curb inflation. Since the seventies, the Federal Reserve Bank has preferred to keep interest rates between two and five percent, shooting for mild stimulus of the economy and general growth of two to three percent, provided that unemployment stays relatively fixed.

Two years prior to the great economic meltdown of 2008, the Federal Reserve Bank quit raising interest rates. The last raise in rates was in the fourth quarter of 2006 when the rate peaked at 5.25%—not an historic high, but the highest rates had been since 1999.

When the great housing bubble burst in 2008, interest rates were reset to near zero as a part of an overarching economic stimulus program designed to help American banks, and the economy as a whole, stabilize, and get turned around and back on track.

From 2008 to 2015 the rate remained at a historically low level. But with the economy beginning to boom again and unemployment shrinking to near-historic lows, the Fed has begun to sell off financial holdings it acquired during the financial crisis and has raised rates as a direct result. The Fed has raised the rate six times since 2015 and will likely continue to raise it through the end of 2018.

A Couple of Silver Linings for Debt Settlement Professionals

There are a couple of silver linings to all of this, both for you and for your clients. Raising federal interest rates can have a positive effect on savings as banks look to incentivize deposits from consumers to offset the rise in costs associated with borrowing from the Fed.

So, once your clients get through settlement, they will have a more rewarding future saving money than they had while rates were lower. Also, rising rates can incentivize clients to act now before things get even more grim.

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Rising Rates and Their Effect on Consumer Debt

How the Federal Reserve Rates Affect Your Client’s Debt

Federal Reserve Rate Hikes Over the Past Two Years

A Couple of Silver Linings for Debt Settlement Professionals

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A Couple of Silver Linings for Debt Settlement Professionals

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