The Federal Reserve hiked its benchmark rate by 0.75 percentage points on Wednesday in an effort to temper the rising costs of consumer goods and services. While economists say raising the interest rate will help cool consumer demand and hopefully ease record-high inflation, it will also raise the cost of borrowing for everything from houses to car loans. Lower-income households with credit card-debt — those with a median income of $16,290 per year and $35,630 per year — typically have a higher debt-to-income ratio than wealthier Americans, according to Federal Reserve data.
The Fed’s four rate hikes this year could hurt low-income families more than most, said Radha Seshagiri, the public policy and system change director at SaverLife, a nonprofit that helps families with low and moderate incomes to save money. They are already struggling to pay back credit-card loans and purchase big-ticket items like automobiles due to the rising costs, she said.
“‘People are starting to put their basic needs and their daily expenses onto their credit cards.’”
— Radha Seshagiri, the public policy and system change director at SaverLife
Seshagiri said most of the people that her group serves are hourly wage earners — who make their living on the number of hours worked in any given week — and require a car for their daily commute, either because they live in rural areas where public transportation is not available, or because they work night shifts. They have, she added, been hit hard by the rise in the cost of food and gas. “People are starting to put their basic needs and their daily expenses onto their credit cards,” Seshagiri said. Inflation hit a 41-year high in June, with prices on consumer goods and services increasing 9.1% from the year before. The price of groceries last month shot up by 12.2% on the year, and gas has risen by more than $1 over from July 2021 to $4.28 on Wednesday. However, the recent rise in the cost of living has had an even bigger impact on rural America, according to a report by Iowa State University professor Dave Peters, which studied the impact of inflation in small towns. “The biggest inflationary impact on rural households has been the increased cost of transportation …