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Fed rate hike this week to hit millions of borrowers

Fed rate hike this week to hit millions of borrowers thumbnail
  • The Federal Reserve this week is expected to enact a quarter-point rate hike that would take its benchmark target to between 1 percent and 1.25 percent.
  • TransUnion estimates that 8.6 million borrowers were unable to take the payment hit the last time the Fed hiked in December.
  • Another full percentage point hike from here could cause 2.5 million consumers to be in danger of not being able to keep up with payments, the firm said.

The quarter-point interest rate increase expected this week will impact millions of borrowers, many of whom will find it difficult to make monthly payments on credit card and other types of debt that’s about to become more expensive.

While it may not sound like much on paper, the Federal Reserve‘s anticipated move Wednesday to hike its benchmark interest rate target up a quarter point will have ramifications.

Financial information services firm TransUnion found that when the Fed made a similar move back in December 2016, some 8.6 million consumers could not absorb the hit. Though the move cost the average debt-holder just $18 a month, it “caused a financial challenge to millions of consumers” in the three months after it hit.

Moreover, the harm was not just to folks at the bottom of the credit ladder.

“The bad news is there are people, not just subprime or near-prime but prime, prime-plus and super prime (affected) that lenders may not think about,” said Nidhi Verma, senior director of research and consulting for TransUnion. “This is something they need to be mindful of.”

TransUnion breaks the impact down:

[subprime = 300-600 credit score; near prime = 601-660; prime plus = 721-780; super prime = 781-850]

The Fed had held its funds rate near zero for about seven years after taking it there during the financial crisis. Since December 2015 the central bank has sought to normalize the policy it undertook to guide the economy out of its worst slump since the Great Depression.

Consumers took advantage of the rates, rolling up loads of cheap credit for consumer loans, mortgages and student debt. Consumers now hold $3.8 trillion in total debt, an increase of 31 percent over the past five years, according to Fed data.

Of that total just over $1 trillion is revolving debt — basically credit cards and lines of credit. That kind of debt is impacted almost immediately when the Fed raises rates. A Fed hike triggers a corresponding move in the prime rate, which is what lenders use for a base on what to charge.

To be sure, the impact to mortgage borrowers will be minimal because those loans are based on longer term rates which have failed to go higher despite the Fed increases.

“What will be surprising is superprime (borrowers) also will have negative ability to absorb this hike,” Verma said. “As the consumers near not having the capacity to make these payments, certainly credit access will be curtailed.”

Personal finance experts advise borrowers living on the edge credit-wise to put aside an emergency fund for unforeseen increases. TransUnion estimates that another 1 percentage point increase in the Fed funds rate — which theoretically could come over the next year or so — would harm 2.5 million consumers.

Those holding student loans are particularly susceptible. Education-related debt is at $1.4 trillion, up a whopping 36.3 percent over the past five years. The average rate is on the rise, going from 3.76 percent last year to 4.45 percent for the 2017-18 term, and there’s a sense that the atmosphere in Washington is getting unfriendly.

“These interest rate increases are relatively small and won’t drastically change folks’ monthly loan burdens,” said Brianna McGurran, student loan expert at NerdWallet. “But it’s a tough climate for borrowers in general right now.”


22 Comments on "Fed rate hike this week to hit millions of borrowers"

  1. Outcast_Searcher on Wed, 14th Jun 2017 8:12 pm 

    If people can’t handle $18 more a month, they are borrowing WAY too much.

  2. Midnight Oil on Wed, 14th Jun 2017 8:24 pm 

    It’s so tuff for borrowers right now!
    Time for a RATE cut…give me a break
    After the unraveling folks will wonder WTF
    They did WHAT…and got away with it for how long?
    Wow, and are thought Jesus walking on water was something special!
    Too much

  3. BillC on Wed, 14th Jun 2017 9:15 pm 

    now the US Govt owes the Federal Reserve Bank $4.5 trillion plus 1.25%. This is for fiat money not earned but created.

    Why not get rid of the privately owned bank and wipe off $4.5 trillion off of our (USA citizens) debt?

  4. Midnight Oil on Wed, 14th Jun 2017 10:02 pm 

    I DARE President Trump to get rid of the Federal Reserve. He’ll end up like the last President that tried…JFK…

  5. makati1 on Wed, 14th Jun 2017 10:36 pm 

    Get rid of the Fed? LMAO!

    How? Do you know what happens to that “debt” if the Fed is shut down? It ALL comes back to the National (Taxpayer) Debt. It does not evaporate. It does not go away. It just goes back on YOUR balance sheet.

    But, the coming collapse will take care of it by hyperinflation and/or the end of the Petrodollar. Neither will be a good thing for Americans. Ask the Venezuelans what it will be like. No difference. are YOU prepared?

  6. makati1 on Wed, 14th Jun 2017 11:00 pm 

    The FSofA’s death by a thousand cuts represented by a few of thousands of negative headlines:

    “Mainstream Media Incitement of Violence Against Republicans Leads to Shooting of U.S. Congressman ”
    “Lynching Free Speech: The Intolerant State Of America”
    “Illinois’ Economic Growth Is Worse Than During The Great Depression”
    “You Won’t Believe This Stupid New Law Against Cash And Bitcoin” (Police State)
    “Senate Overwhelmingly Approves New Sanctions To “Punish” Russia” (Insanity)
    “UAE Ambassador Urges Trump To Move CENTCOM Air Base Out Of Qatar” But! But!)
    “Pentagon Agrees To Sell $12 Billion In F-15s To Qatar” (Playing both sides for $$$)
    “Police Issue “Shelter In Place” After Shooter Kills 2, Injures 3 More In San Francisco UPS Facility; Shooter Detained”
    “Houston Resorts To Selling Off City Streets To Try And Close $100 Million Budget Shortfall” (Desperation)
    “Visualizing Baltimore’s Opiate Experience” (Drugs are spreading)
    “”Active Shooter” Reported At Travis AFB: Public Ordered To Shelter In Place” (Safety? LMAO)
    and, finally:
    “Peak Economic Delusion Signals Coming Crisis”

    Pass the popcorn…

  7. makati1 on Wed, 14th Jun 2017 11:08 pm 

    BTW: This is what I mean by ‘collapse’:

    “… the assumption that crisis and collapse are “events”, that they happen suddenly and without warning. If the nation does not look like a television zombie drama tomorrow, there must not be a collapse. In truth, economic collapse NEVER happens without warning, because as I have said ten thousand times and will say ten thousand times more, collapse is a process, not an event. The data points above show an economy that is in severe deterioration, not recovery.”

    We are in the ‘collapse’. It has just started to be noticeable. I see it gaining steam as it proceeds, until it cannot be ignored by the strongest denier. We shall see.

  8. Cloggie on Thu, 15th Jun 2017 12:03 am 

    Who is that in the picture… Bill Maher?

  9. Theedrich on Thu, 15th Jun 2017 12:10 am 

    1 Repub shot. Demonics, NYC & EU: Schadenfreude. Not to mention Sörös.  Of course, the Left pretends sorrow, “thoughts & prayers,” etc.  The usual.  Forget Fed rate hikes.  The Demonic subliminal call for murdering the Trump team is beginning to have its effect.  Comedienne Kathy Griffin had struck an “ISIS” pose by publicly picturing herself triumphantly holding a blood-covered mock decapitated head of President Trump, which elicited mock horror (and secret delight) from the anti-Trumpies.  Then Bill de Blasio, mayor of New York City, defended a taxpayer-supported public play in Manhattan’s Central Park in which the assassination of President Trump was portrayed like that of Julius Cæsar two millennia ago.  All just good art, said Billie to the Manhattanites, most of whom had exulted with great glee over seeing the stage-Trump play-murdered before their mesmerized eyes.

    So now the Leftist vitriol is beginning to have its effect.  Enough play-acting;  get the whackos among the Lefties to try direct action.  Of course, Hillary Clinton, who publicly claims to have joined the “resistance,” is quietly chuckling to herself.  The murder of Seth Rich, who had leaked Democratic National Committee files to Wikileaks, had taken care of one problem for her.  Maybe having Leftist morons gun down random Repubs will rescue her failed campaign after all.

    The Mainstream Media can be expected to expectorate the standard condolences, then quickly return to character-assassinating Trump.  Unfortunately, Trump himself is not choosing to defend himself adequately, maybe thinking that the Demonic Party is really American, and will soon return to common decency if he tweets enough.  Unfortunately, that hope is like expecting Trotsky, Lenin and Stalin to act like civilized Russians during the Communist “Red October” Revolution of one hundred years ago this year.

    Current Leftist/Sörösian agitation makes that expectation now appear utterly vain.

  10. Apneaman on Thu, 15th Jun 2017 1:01 am 

    Douche, you’re just a typical merican conservative. The alt right act is just like teenagers dressing as punk rockers to piss the old folks off, but the apple did not fall far at all. You’re just like daddy and grandpa, but living in a different and worse/end time. It’s all coming out on both sides in the US. Screeching political monkeys laying 100% of the blame on each other (like that’s ever happened in the real world). Do you have any inkling how fucking ridiculous you sound? You said you were atheist and always bash the Christians then turn around and label the other tribe as demons? I think you believe that or something close. When the hate gets to the final stage the humans always look at the “other” as sub human or animals or insects. The details of your tribal spats don’t matter to me – B O R I N G !!!- or anyone else who sees the unraveling for what it is. It’s like listening to the drunken white trash neighbors “domestic disputes” every damn night. Same thing over and over and the cops show up every 3rd or 4th night when it gets too violent and loud. It’s obvious how it’s all gonna end, but no one wants to hear politically psycho Americans, left or right, bark out their incessant beefs. We all know what you’re going to say about each other, because it’s the same shit every fucking day and the only change is it getting more hateful. It is not interesting. You are not interesting. Tear each other up. No one cares. You are just as much a useful idiot as the most rabid Hillary supporter – just wearing a different jersey.

  11. Cloggie on Thu, 15th Jun 2017 2:23 am 

    Do you have any inkling how fucking ridiculous you sound?

    Only to you.

    When the hate gets to the final stage the humans always look at the “other” as sub human or animals or insects.

    Yeah, the denouncing of hate is standard by the globalist leftists, like you, who want to park everybody in the same tax farm… owned by the leftists.

    But “hate” for the other (and the flip side “love” for your own) are potent forces in history and the leftists won’t be able to abolish it.

    You can call alt-right separatists “teenage punk rockers”, but I would take them seriously if you want to understand what is going to happen next.

    Your tribe wants to drown the white race and its stupid, while self-defeating, anti-Darwinian Christian ideology in the masses of the third world… so your tribal monkeys can own the lot.

    We in Europe know you a little better and have “handled” you in the past, numerous times. This kind of intellectual vigor can’t be expected from Americans, but they, with their hundreds of millions of shooters, sure as hell are going to defend themselves against being pushed into minority status and at the mercy of those who have been trained by the Soros types to go after whitey at the first opportunity:

    But that’s ok. The 20th century communist experiment is going to die for ever in its last stronghold America from the very moment the first US townhall will be occupied 2014 Slaviansk-Ukraine style by “Trump voters”, from the moment Trump will be killed or removed from office and kosher president Suckerberg will attempt to finish off whitey once and for all by imposing draconian bills on them for universal health care and basic income. And in Eurasia everybody will have an interest in seeing Suckerberg fail: China because it wants the South China Sea, Australia and New Zealand…

    … Russia because it wants to merge with Europe and keep China at a distance and Europe won’t mind playing its old roll again it played over the last 2000 years, now as a united political entity of 500-700 million (including Russia), to offset the “billionaires” China and India.

    Why don’t you give it a try, TalmudTurd. Your days are over. Dead man walking, which you basically acknowledge yourself with your doomer mind.

  12. Cloggie on Thu, 15th Jun 2017 2:36 am 

    Australian idiot PM making fun of Trump:

    Anglosphere blowing itself up.

    “Jolly good!”

    – Chinese army: 2.3 million active, 0.5 million reserves + nukes
    – Australian army: 29,366 permanent (regular) and 14,301 active reservists (part-time). No nukes.

    Bon appetit, Dragon Rouge!

  13. Apneaman on Thu, 15th Jun 2017 3:37 am 

    clog don’t like it when his boyfriend trump is insulted. Dutch faggot cock licker.

    At least the Auzzies know how to and have fought. 1 of them is worth a 1000 limp wristed Dutch “abstainers”.

    Lick my shit hole gossip queen.

  14. Cloggie on Thu, 15th Jun 2017 10:08 am 

    At least the Auzzies know how to and have fought. 1 of them is worth a 1000 limp wristed Dutch “abstainers”.

  15. Cloggie on Thu, 15th Jun 2017 10:33 am 

    At least the Auzzies know how to and have fought.

    Of course you love Aussies, they fought twice against continental Europe, as a British colonial resource, never really knowing why…

    …and the second time they fought in your interest. Gotta love ’em.

    The soon will be a Chinese colonial resource. (Malaysia) (Korea) (Aboriginal)

    No Kylie Minogue to show off with.

    Just like with Canada, not enough “identitarian substance” to survive as a recognizable cultural entity. Just as you like to see it.

    Sad though that Trump is retreating from empire, so the Australians need a new master and that master is going to be China.

  16. shortonoil on Thu, 15th Jun 2017 11:32 am 

    “Sad though that Trump is retreating from empire, so the Australians need a new master and that master is going to be China.”

    Not going to happen; that would imply that the Yuan is going to be the next reserve currency. To be a reserve currency a nation has to be a net importer. Enough of the currency has to be kept in circulation to prevent liquidity shortages. If China turned into a net importer, as opposed to a net exporter, her economy would collapse in a heart beat. Being a net exporter is the basics of its entire economy. The ERUO is the only other currency in the world that could replace the dollar, and Germany is smart enough to not want the position. It would put them into a balance of payments deficit position forever, just like the US has been in for the last 40 years. When the Petrodollar goes with the petro the world’s monetary system falls apart. It will be back to bartering chickens for potatoes.

  17. onlooker on Thu, 15th Jun 2017 11:35 am 

    Speaking of which
    US Import & Export Prices Tumble In May As China Credit Impulse Collapses

  18. shortonoil on Thu, 15th Jun 2017 1:41 pm 

    “US Import & Export Prices Tumble In May As China Credit Impulse Collapses”

    The credit markets are the weak link in the monetary system. The CBs only control the amount of liquidity that is available. They do not control the amount of debt that the economy is willing to absorb. Without buyers for their currency their printed currencies go no where. Banks just sit on it, and redeposit it at the FED. Buying assets with their currencies has its limits, as the FED has recently admitted.

  19. dave thompson on Thu, 15th Jun 2017 1:52 pm 

    Anyone remember when back in the 70-80 era the rate was up to 16% or more? How can a one point dif mean anything? EROEI!

  20. onlooker on Thu, 15th Jun 2017 1:57 pm 

    The credit markets are the weak link in the monetary system.—And the corollary is that consumers are saturated with debt service payments making them a higher risk to creditors and more wary themselves of taking on further debt

  21. joe on Thu, 15th Jun 2017 2:09 pm 

    Dave, 1% matters cause the so called recovery is fake news, an old style recovery would have meant workers in factories getting back to work, wages rising etc and demand rising as a result. In the modern services economy wages do not rise for the masses who already owe lots of debt, cause of wage competition driven by immigrants etc so 1% for those living hand to mouth is a death sentence in an already low wage inflation economy. The services economy already operates at almost maximum productivity so the business case for wage rises do not get a hearing in board rooms so instead the masses turn to payday loans and credit cards and can’t agitate for more wages cause unions are worse than ISIS to some business leaders

  22. onlooker on Thu, 15th Jun 2017 3:13 pm 

    Joe is so right. What we have now is the buffons of the MSM, screeching that the Economy must be great because the stock market reached record highs. Yep the 1% are doing really well

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