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Is a Rate Hike a Good Thing for the Average American?

The Fed just agreed to raise key interest rates by 0.25 percent. So what does that mean for the average American?

We take the example of one suburban mom and demonstrate how the rate increase — just the second since 2006 — could impact her wallet.

Meet Jane. As the single mom pulls her Subaru Outback into the parking lot at Target, she takes a moment to wonder how the federal interest rate hike will affect her.

She kills time by running a few numbers on her phone's calculator: She's got $5,000 in credit card debt, $10,000 in savings, a $30,000 home equity line of credit, and a down payment nest egg.

Then there's her two boys. After the divorce, the house just seems like too much space and too many memories. It would be nice to start over, but still stay in Indianapolis, her hometown. She's got her eye on a $200,000 three-bedroom, two-bathroom Craftsman with plenty of yard space.

The credit card has the least impact, her minimum payment will only go up $1, according to data from Bankrate. Phew.

And finally she'll start to see some interest on her savings account — albeit only $25 more a year. That's not much, but it's enough for a couple of pepperoni pizzas, plus tip. That's something at least.

However, she'll also see a bump-up on the minimum payment on her home equity line, $6.25 a month, or $75 a year. That'll eat up that additional savings interest three times over. Grr.

As for that new dream house? Well, she learns that mortgage rates aren't tied directly to the Fed rate. But they've already increased more than half a percentage point based on the economic outlook, including government stimulus and inflation. So that new $200,000 mortgage will cost an additional $58 per month, or $696 a year.

Nothing to sneeze at but, all in all, not too much damage. She exits her car and begins walking towards the store entrance.

The question is, what happens if the Fed keeps raising rates? She saw a story that said there could even be three rate hikes in 2017. Who knows where mortgage rates will go, but three sets of Fed increases would mean $100 in savings interest, $300 more in payments on her HELOC, and $48 more on that credit card debt, per year. Net, she would end up being $248 worse off within 12 months.

But that's too far ahead to worry about, she thinks as she rummages in her purse. Let's just get through dinner tonight. Now, where are those darn coupons?