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We’ve received a few inquiries from readers asking what the U.S. Government bailout of Fannie Mae and Freddie Mac would mean to the credit card industry. It’s not an easy question to answer.
On a large scale it is surely a positive turn of event, since it removes the uncertainty from the overall credit and debt markets. It is a move that many experts had anticipated and many saw as long overdue, since the U.S. Government was indeed guaranteeing all the mortgages issues by these companies, and with the widespread housing and mortgage crisis, the Federal Government would have to step in sooner or later. By taking taking over Fannie Mae and Freddie Mac the Federal Government can :
- Streamline the processes of dealing with troubled mortgage loans;
- Have first hand analysis of the portfolio of mortgage loans and take timely corrective measures;
- And the most important benefit is that a lot of uncertainty has been removed from the entire credit and loan markets, with the positive impact of an overall lower interest rates, and – going forward – an ease of credit.
An overall more stable credit market means less volatility, and therefore people who are carrying a balance on their credit card where the APR is variable, they SHOULD experience lower rates.
The reason why we say SHOULD is that predicting the trend on interest rates is not easy, since at the end of the day, they are the market forces that determine the variation on interest rates, and market forces are global, and affected and affecting many variables, and highly unpredictable.
As usual we stand by our position that credit cards are excellent tools to use withing a sound personal finance philosophy, excellent as payment instrument for everyday purchases , with the balance on the card being paid off each billing cycle; both for personal and business use.
Of course there are times when people find themselves carrying a balance on their card with high interest rates, and we can’t stress enough the need to lower the interest rates on those credit cards, while accelerating payment schedule to bring those balance in check and then down to zero.
Related Articles: How long will it take you to pay off your Credit Card?
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