Interest rates will rise again, making it a good time to repay expensive credit card debt as soon as possible.
Currently, annual interest rates on credit cards are just over 16%. As the Federal Reserve is in a cycle of rate hikes, with a half-point increase for every other meeting this year, APR is likely to grow.
They could even surpass the current record of 17.87% set in April 2019.
This can be a problem for Americans with unpaid bills. Credit card balances reached $ 841 billion in the first three months of the year, according to a report by the Federal Reserve Bank of New York. During the same period, 229 million people opened new credit card accounts, which is more than in the previous quarter.
“The biggest key to getting out of credit card debt is not paying a high interest rate on that debt,” said personal finance expert Suze Orman.
Look for lower interest rates
One of the first steps Orman advises to those who want to get rid of credit card debt is to see if you can lower interest rates.
This will help you pay off your debt faster and make sure that most of your money will be spent on knocking out what you owe rather than accumulating interest.
There are several ways to do this, for example, transfer the balance to another credit card with 0% interest rates for a certain period, issue a personal loan with a lower interest rate to repay the balance or work with a credit counselor to consolidate your debt with a lower rate.
These options will depend on your personal situation and your credit score, Orman said. Those with lower scores, she recommends contacting the National Credit Counseling Fund for help in lowering interest rates and getting a payment plan.
Choose a way
If you’re going to pay off your debt while keeping your cards open, there are usually two methods people use to clear the balance, according to John Sherer, a certified financial planner and founder of Trinity Financial Planning in Madison, Wisconsin.
One is to round off all your outstanding debts on the balance sheet and start by repaying the smallest.
“Then you get the momentum,” Scherer said. “You see, some of these things fall out of books, and that’s very good.”
The second model that Scherer personally says he recommends to customers is to look at all their outstanding debt and repay the debt with the highest interest rate first. Over time, this means you will pay less money to repay your debt because you immediately accept the highest interest rates.
Orman also recommends this approach. She says to round up your credit card debt and make all the minimum payments monthly. From there, add 20% or more to the total payment and apply it to the debt with the highest interest rate. Once it pays off, move this extra payment to the next card and then to the next until everything is deleted.
Build personal savings
“What you can do is take all your credit cards, put them in a plastic bag and put them in the freezer,” said personal finance expert Suze Orman.
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