June 14 will increase the Fed loan rates: what does this mean for borrowers

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June 14 is expected to see a quarterly increase in interest rates on loans, initiated by the Federal Reserve System (Fed).

It will affect millions of borrowers, many of whom will have to pay much larger monthly payments on credit cards and other types of loans, writes CNBC.

It is expected that the increase will occur 14 June.

When the Fed took a similar step in December 2016 of the year, about 8,6 million consumers were unable to pay their debts on time. Although this increase cost the average debt holder just $ 18 per month, it caused problems for millions of consumers.

The Fed kept its interest rate on loans near zero for 7 years after a significant reduction in this rate during the financial crisis. From December 2015, the system seeks to normalize the loan payment policy and return rates to a normal pre-crisis level.

Consumers have taken advantage of reducing this rate to get more loans.

According to the Federal Reserve, the total amount of debt of Americans now stands at $ 3,8 trillion, which is 31% more than 5 years ago.

Of the total, just over $1 trillion is in so-called revolving debt—credit cards and lines of credit. Raising Fed rates affects this type of debt primarily. The Federal Reserve will increase interest rates on other loans gradually; mortgages will be virtually unaffected due to the length of the contracts.

Personal finance experts advise borrowers living on the verge of creditworthiness to refuse loans because of the increase in their value. Estimated TransUnion, an increase in the 1 percentage point rate of the Fed, which theoretically could occur within the next year, will damage 2,5 to millions of consumers, making them insolvent at new rates.

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