Fed raises benchmark rate by 25 basis points, affecting variable-rate debt

The Federal Reserve voted unanimously to lift its benchmark federal funds rate by 25 basis points, moving the target range from 3.5%-3.75% to 3.75%-4%. This is the first increase since July 2023 after a series of meetings with rates held steady.

The change is expected to raise borrowing costs for consumers with variable-rate obligations, such as credit cards, home-equity lines of credit and adjustable-rate mortgages that reset. Fixed-rate loans, including most existing mortgages and auto loans, should remain unchanged.

"Borrowing just got a little bit more expensive," George Kamel, co-host of "The Ramsey Show," said. "Your credit card might move from 28% to 28.25%, and a new fixed-rate mortgage could rise from 6% to 6.25%."

Kamel advised holders of credit-card balances to prioritize paying down high-interest debt, noting that credit-card APRs can range from 20% to 30%. He recommended the “debt snowball” method, tackling smaller balances first while maintaining minimum payments on other accounts.

Prospective homebuyers may see modestly higher mortgage costs, though Kamel said the increase is not likely to be dramatic. He also pointed out that savers could benefit as banks may raise yields on high-yield savings accounts.

"There is a silver lining to the Fed funds rate hike, and that is high-yield savings accounts could get a boost," Kamel added.

Overall, Kamel emphasized that consumers should focus on reducing variable-rate debt and building savings, rather than speculating on future Fed actions.