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How the Fed Rate Hike Will Affect Your Credit Card Debt

Updated: Dec 16, 2015 9:25 PM UTC

Federal Reserve Chair Janet Yellen announced today that the Fed would raise interest rates by a quarter to a half a percentage point, after seven years at essentially zero. In fact, the last time the Fed raised interest rates was in 2006, before the iPhone came out and the Kardashians kidnapped the kountry's konsciousness via the E! Network.

For people looking to buy a real estate, this is not the best of news (nor is it the worst). For investors, time will tell (though the market was up more than 200 points following the announcement). But if you have any credit card debt, this much is certain: you're going to see your interest rates go up.

Most credit cards these days don't have fixed interest rates but instead favor variable interest rates, usually tied to the prime rate. That way credit card companies are allowed to raise them—something that fixed-rate cards can't do after the Credit CARD Act of 2009. Since the prime rate is usually around 3% more than the Fed's rate, cardholders are going to see a small jump.

But how fast will it happen and should you be worried?

NerdWallet.com's credit card expert Sean McQuay says credit card borrowers might have a small reprieve before the increase hits. "M ost banks will adjust on the next billing month, some next quarter," he told MONEY. For new cardholders, however, McQuay says the hike will be immediate.

Exactly how much this will affect you depends on how much you have borrowed on your credit card. Credit card interest rates are generally very high—the average is around 18%—so a quarter of a point might not make much of a difference. Say you're on the hook for $5,000, for example, and interest rates go up 0.25%; the additional interest would only be around a dollar per month

" NerdWallet has done the math and found that the average indebted American household can expect to spend an additional $125 in credit card interest over the next five years," McQuay says. "While that's still real money, this shouldn't significantly impact your financial standing."

That figure assumes the current rate holds throughout the five-year period, but rates probably will continue to rise—albeit slowly—pinching your wallet further. Still, if you can pay down your balance now, you'll be better off. High interest rates are never nice things to have in your life.

Read next: What the Fed's Move Means for Mortgage Rates