On September 16, The Federal Reserve raised its target range for the federal funds rate by a quarter percentage point, to 3.75%–4%. This is the first increase since 2023 and you may be wondering, why now?

According to Michele Raneri, Vice President and Head of U.S. Research and Consulting at TransUnion,“The Federal Reserve’s decision to raise interest rates by a quarter percentage point reflects its continued focus on addressing persistent inflation. While inflation has moderated from peak levels, it has remained elevated enough to prompt additional action from the Federal Open Market Committee. At the same time, labor market conditions have remained relatively resilient with unemployment rates holding steady in recent months, providing the Fed the confidence to raise rates at this time.”

What The Fed Hike Means For Your Credit Card Debt

According to Reuters , major U.S. banks raised their prime rates following the September Fed decision. Reuters reports that variable-rate borrowing, including interest payments on credit card debt is where consumers are likely to feel higher costs. Those of us carrying balances are affected more than people who routinely pay their statement balances in full. This is why a rate hike is particularly important for somebody already carrying high-interest revolving debt.

It’s important to note that a quarter-point Fed hike does not mean your credit card annual percentage rate (APR) , which is the annualized interest rate charged on balances you carry, will jump by exactly a quarter point immediately. However, because most credit cards have variable APRs tied to benchmark borrowing rates, higher rates can translate into higher credit card payments.

Raneri explains, “For credit card consumers, the rate increase is expected to result in minimally higher borrowing costs as lenders adjust variable-rate products to reflect the higher interest rate environment. For instance, a consumer carrying the average Q2 2026 credit card balance of $6,610 at a 22% APR could see an increase of $1.38 minimum monthly payments as those higher rates are passed on. While the near-term impact on minimum monthly credit card payments may be relatively small, higher borrowing costs can add up over time, particularly for consumers carrying larger balances or making only minimum payments.”

The real issue isn’t one month’s increased payment. It’s what happens when expensive debt remains outstanding month after month. Also, it’s important to be mindful that if you continue making purchases while carrying a balance, you will be simultaneously trying to pay down yesterday’s spending while financing today’s. Now is the time to curb spending and tackle your credit card debt to get ahead of compounding interest.

Raneri advises that, “Consumers should focus on paying their credit card balances in full each month when possible, or on keeping credit card balances as low as possible. Even modest rate increases can become significantly more costly when applied to larger balances or compounded by future hikes. Maintaining on-time payments and protecting a strong credit score remain critical steps for securing the best available borrowing terms.”

How to Manage Credit Card Debt

Face the numbers with neutrality and without judging yourself. Look up every credit card account you have and document the current balance, APR, minimum payment and due dates. Add up the total of your credit card debt. Remember that the total amount is information and not reflective of your worth, intelligence or responsibility as a human being. You may also want to check your credit score and commit to improving it.

There are two different approaches you can take. Debt avalanche is the approach of prioritizing paying off the cards with the highest interest rates. Debt snowball refers to the approach of prioritizing the smallest balances first. Debt avalanche minimizes the interest you will pay over time, while debt snowball can reward you with small wins to help you feel like progress is being made. Pick the strategy that will motivate you more so you stick with the plan. This will help improve your financial self-efficacy, a sense of confidence in your ability to manage money effectively.

If you are struggling to make minimum payments, be proactive. Contact the credit card companies and ask if any hardship programs are available that might lower your APR or minimum payments. A balance transfer to a lower-interest card may help you reduce interest costs, but carefully review transfer fees, the length of the introductory period and the APR that will take effect when the promotional rate expires.

Don’t let financial anxiety trigger more spending. Stress can lead to poor financial behaviors including retail therapy, convenience spending and impulsive purchases. Consider a spending fast and/or a 24-hour pause before making discretionary purchases to give you time to make conscious choices. You may want to remove stored credit card information on your devices, delete retail apps, and unsubscribe from promotional texts, emails from tempting retailers. Consider a social media cleanse so you aren’t tempted by ads. The goal is a healthy balance between spending, paying off debt and saving for emergencies.

How To Handle Financial Anxiety And Overwhelm

For those of us carrying credit card debt, this is another piece of bad financial news, when we are already navigating economic uncertainty and rising living costs. It is understandable to feel a sense of overwhelm or panic, and to experience some financial anxiety. The financial stress can trigger or exacerbate anxiety, depression, substance misuse, disordered eating and relationship conflict. It can also lead to financial denial, where we might brush off the seriousness of compounding interest on debt.

As a financial therapist, I recommend the following steps:

Honor your emotions and release them by talking with others, journaling, moving your body, and mindfulness practices such as breath work, meditation and progressive muscle relaxation. This will help you become more grounded so that you can be consciously responsive rather than emotionally reactive.

Practice self-compassion rather than self-flagellation. Forgive yourself for past financial mistakes and empower yourself in the here and now. Be mindful that financial shame can lead to avoidance behaviors such as not opening bills, ignoring your accounts, emotional spending, procrastination and reluctance to ask for help and support.

Be mindful of your self-talk and replace catastrophic and negative thoughts with self-affirmations and positive mantras such as, “With support, I can resolve my financial problems.”

Empower yourself by promoting your financial literacy. Learn how APR, compounding interest, minimum payments, credit utilization, or variable interest rates work. Consider working the self-help program in my book, The Financial Mindset Fix: A Mental Fitness Program for an Abundant Life . Address anxiety by promoting awareness and taking positive action.

Talk with your credit union representative, personal banker, financial advisor or accountant and ask for their expertise and advice. Explore options such as debt consolidation or in dire situations, filing for bankruptcy. Learn how to talk about money and avoid the cost of silence.

Set healthy money boundaries with those with whom you have a financial relationship, including your partner, kids, friends, family, employer, vendors, etc.

Seek counseling or therapy to address your financial psychology including any financial denial, money avoidance or scarcity mindset and to treat any mental health implications you may be experiencing. Consider attending 12-step groups such as Debtors Anonymous or Spenders Anonymous.

Separate your self-worth from your financial state. You are innately worthy. Debt is a problem you have, not who you are.

Empower Yourself To Cultivate Financial Wellness

We can’t control the Federal Reserve interest rates, but we can control how we respond.

Focus on getting a handle on your spending, debt reduction and saving. Create a budget and a financial plan. Ask for assistance from professionals and increase your financial literacy so you have the skills and confidence to make healthier financial decisions going forward. Focus on progress, not perfection.