Your Credit Card Debt Is About To Cost You Even More. Here’s What to Do About It.
Everything is getting more expensive, including your credit card debt. Last month, the Federal Reserve raised interest rates by 0.75%—the largest one-time increase in nearly three decades. Credit card companies factor the Fed’s rate into the annual percentage rates (APRs) they charge consumers, so if you are carrying credit card debt, you can expect to spend even more on interest in the coming months.
But luckily, you are not powerless in the face of rising interest rates. Here are five strategies to keep crushing your debt:
Pay off your highest interest debt first
Paying off your highest interest debt will save you the most money in the long run. The higher rates rise, the more you save by paying that off ASAP. Rather than paying slightly above the minimum on all of your cards, focus all of that additional cash on paying off one card at a time and pay just the minimum required on the rest.
Do a balance transfer for a limited time 0% APR
How does no interest sound to you? If you have less than $10,000 in debt and a credit score above 700, you may be able to qualify for a balance transfer card or two and move your current interest-accruing balances to a 0% APR card for a limited period of time (typically 12-21 months). This will give you a reprieve from rising interest rates and allow you to tackle your debt more quickly.
Consolidate credit card debt with a personal loan
Personal loans tend to have lower interest rates than credit cards (especially with a credit score higher than 680). The rates are fixed, meaning that once you lock in a rate, your interest rate won’t be affected by any future rate hikes from the Federal Reserve. Bonus: consolidating your credit card debt through a personal loan can simplify paying it off because you’ll just have one regular monthly debt payment—as long as you don’t keep using your credit cards. Speaking of which…
Don’t charge anything new to your credit cards that you won’t pay off in full
Since you will be paying more for the debt you already have, you should make sure that you’re not adding to it. This means using cash or debit for your purchases or at least paying the minimum plus any new charges that you put on the card.
Don’t forget to save
Putting all of your resources toward paying off debt will keep you trapped in the debt cycle. Set some of your income aside to save for emergencies so you don’t have to rely on credit during a crisis.
The consolation prize with rising interest rates is that we are seeing high yield savings accounts consistently increase their annual percentage yields (APYs), so make sure you park your savings in one of these.
Need help with your debt repayment plan? Speak with one of our Financial Trainers on Demand and check out our B.F.F. approved financial products.