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How will the country's credit downgrade affect me?

Since Standard & Poor downgraded the USA's credit rating from AAA to AA+, consumers have expressed concern regarding the trickle-down effect. In other words, what does this downgrade mean for me?

Bottom line is, we don't really know yet. But most experts think it will mean an increase in interest rates by as much as 5 percent. This means that if you have a variable rate credit card or home equity line of credit, you'll likely see an increase because your lender can just modify your terms at any given time. 

If you're thinking the CARD Act of 2009 will prevent this from happening, you're sorely mistaken. Credit card issuers can increase interest rates because they're tied to a moving index. 

What steps can you take to minimize the impact on you? First, take a look at your credit cards. Call the issuers, and ask if you have a variable or fixed interest rate. You may be surprised that your once-fixed rate has been switched to a variable, thanks to that CARD Act. When you discover which cards have variable rates, stop using them. Continue to pay the card off, aiming toward getting it paid off as soon as possible.

If you have a home equity line of credit, contact your mortgage lender and see if you can refinance, combining the mortgage and the line of credit into one loan with a fixed rate. This way, no external rate increases can affect you. 

Published Aug 23 2011, 12:06 PM by moneycoach
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