Credit card debt is becoming increasingly expensive. The average interest rate on a credit card has skyrocketed in recent years and is now over 20%. According to the Consumer Financial Protection Bureau (CFPB), in 2022, the most recent year for which data is available, credit card companies charged consumers more than $105 billion in interest. Consumer credit card debt also hit a record high of $1.14 trillion in the second quarter of 2024.
Credit card interest is a pesky problem that can make it difficult to get out of debt. The good news is that there are ways to avoid this unnecessary debt or deal with it responsibly if you are actually faced with it.
1. Consider 0% APR offers
Balance transfer credit cards give you a way to pay off high-interest debt with a 0% introductory period, helping you consolidate your debt and pay it off faster. The best balance transfer cards offer introductory periods of up to 21 months, which means your entire monthly payment goes directly towards paying down the principal, helping you get rid of debt faster.
However, before consolidating your debts with a balance transfer card, you should factor in a transaction fee of 3-5% of each balance transferred. That means if you transfer $5,000 to a balance transfer credit card, you’ll be hit with a fee of $150-250. But this only applies if you qualify to get the card.
Balance transfer cards are usually available only to those with good credit, and a borrower must have full confidence that they can and will pay off the balance within the designated promotional window.
If you can’t pay off the balance within the promotional period, you’ll end up paying interest on the remaining balance, which could eventually put you back in line. Any new debt you add to the card before then will also accrue interest.
If your credit score isn’t good enough to be approved for a card, consider a personal loan or debt consolidation loan to pay off your credit card debt. Interest rates on personal loans can be much lower than credit cards.
“If you have multiple credit card accounts and are carrying debt on them with high interest rates, it can be an excellent idea to consolidate,” says Fox. “By taking out a new loan that carries a lower interest rate than the credit cards, you would pay off the balances on high-interest accounts. You are then left with just one monthly payment at the lower rate.”
2. Pay more frequently
You can reduce the interest you pay on your credit card debt by paying your balance multiple times each month. Taking this step will reduce your average daily balance, which most credit card issuers use to calculate the amount of interest you’ll pay at the end of the month.
Let’s say you have a credit card with a $6,000 balance and you’ve set a budget of $1,000 for your credit card bill this month. If you make a $1,000 payment at the end of your billing cycle, your interest is calculated based on your average daily balance of $6,000. However, if you make two payments of $1,000 and pay one of them mid-month, your average daily balance decreases by $500.
If you receive multiple payments a month, consider setting aside money from each paycheck for your credit card bill. A credit card payment calculator can help you understand how large payments can affect your debt.
3. Tap into existing savings
If you’re trying to save money, it might seem counterproductive to take cash out of long-term savings to pay off debt. But if you’ve been building up a savings account, this can be a strategy that makes sense in the long run. Here’s why: With credit card interest rates higher than ever, even if you keep your money in a high-interest savings account, the interest you’ll end up paying on your monthly carried balance will far exceed the interest you’ll earn.
Adding to this equation is the fact that credit card issuers typically charge interest based on your average daily balance. That means if you carry a balance, you’ll be paying interest, which will increase your debt. If you have savings to put toward your credit card debt, you’ll pay less interest over time.
“Whatever you can do to increase your ability to put more money toward debt repayment will help eliminate that debt faster,” says Fox.
Finding ways to cut expenses or increase repayments can help you eliminate debt while keeping your overall interest payments as low as possible.
4. Call your credit card issuer and ask for a lower interest rate
While it won’t eliminate interest completely, calling your credit card issuer can at least temporarily lower your interest rate.
“Credit card interest rates aren’t always set in stone. You may get a lower rate just by asking — many succeed this way,” says Russell Nelson, a former credit card product manager who is now contact center strategy manager at Navy Federal Credit Union.
If your financial situation and credit score have improved since applying for the card, you may be eligible for a better interest rate. Plus, if you’re a good customer who regularly makes on-time monthly payments, mentioning that when you call the credit card company may also work to your advantage.
It’s also a good idea to shop around and find out what rates other credit card issuers are offering.
“The best way to approach these negotiations is knowing your options,” says Peter Earle, an economist with the American Institute for Economic Research. “Make it clear you know what else is out there and that you have explored money-saving alternatives. Credit card companies are businesses… For that reason, your credit card company would rather cut you a better deal on the terms of your debt than have you transfer your balance elsewhere.”
5. Set a Monthly Budget
The convenience of credit cards means that if you overspend, you’ll end up borrowing more than you can comfortably repay. Remember, you’ll eventually have to pay back the money you borrow from the credit card company, so it’s important to make sure you have the means to pay it back.
Creating a monthly budget that takes into account all of your monthly expenses and monthly income will help you stay on track. When creating your budget, also consider bills that you may only pay periodically or semi-annually, such as a Insurance policy extensions.
You might also consider using a budgeting app that helps you track all your expenses and costs and notifies you if you go over your monthly budget. Many of these apps also identify areas to cut costs, freeing up even more money to pay off your credit card debt. Some of the most popular budgeting apps include Monarch Money, You Need a Budget (YNAB), and EveryDollar.
Bottom Line
Credit cards are useful financial tools and offer many perks and rewards, but they come with high interest rates. The best way to get the most out of your credit card is to pay off your balance in full each month. If that’s not possible, consider a no-interest balance transfer card or call your credit card issuer to negotiate a lower interest rate. Increasing your income will help you pay off your debt faster.
Whatever approach you take, it’s always a good idea to create a budget that will help you stay on track financially in the long term.
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