What the Fed's decision means for borrowers

Michigan residents who have adjustable-rate mortgages or home equity lines of credit may see their monthly payments go up. The same is true of those who have outstanding credit card balances. This is because the Federal Reserve has increased interest rates to between 1 and 1.25 percent. It is expected that the Fed will raise rates three times a year until 2019.

Those who have 30-year mortgages may see rates change gradually, and mortgage rates may increase as the Fed seeks to reduce its $4.5 trillion balance sheet. Rates on auto loans may also go up in the future, but they are being kept down because of a competitive market. The average interest rate on a credit card balance is 15.07 percent. This means that a person with a $5,000 balance will pay about $175 in interest. However, if the Fed increases rates by a quarter-point three times a year, a borrower will pay an additional $525 in interest each year.

It is suggested that anyone carrying a credit card balance work to pay it off quicker while those who have home equity lines of credit should look to refinance. The same is true of those who have adjustable-rate mortgages as rate hikes could add $84 a month to a $200,000 adjustable-rate mortgage loan.

Borrowers who are having financial challenges may benefit by filing for bankruptcy. It may allow them to either reorganize their debts or have them discharged in a short period of time. An attorney can explain the differences between Chapter 13 and Chapter 7 and outline the eligibility requirements of each.