Carrying a balance has always been expensive, but it’s especially expensive now.
The average credit card interest rate in mid-December was 19.42%, the highest rate since 1992. As the Federal Reserve continues to raise short-term interest rates to stifle inflation, average rates could rise even higher, says Ted Rossman, Credit card analyzer for Bankrate.com, which tracks interest rates on consumer loans.
It is not uncommon for consumers who are struggling to pay their bills to make the minimum payment on their credit cards. But over time, paying the minimum will add thousands of dollars to the amount you owe.
The average amount owed by cardholders with a balance is $6,569, according to an analysis by LendingTree, an online loan marketplace. If you carry a balance of that amount, your interest rate is 18%, you only pay the minimum of $165 per month, it will take you five years to pay off the debt, and your payments will total $10,000. (You can calculate your own numbers using Experian’s Credit Card Yield Calculator.)
If you have good to excellent credit, one option is to apply for a balance transfer card with a 0% introductory rate. Wells Fargo, Bank of America, and Citibank offer 0% balance transfer cards for up to 21 months, Rossman says. Most of them charge a transfer fee of 3% to 5% of the balance.
Once the introductory period ends, the interest rate will go up to the card’s regular rate, which may be higher than the rate you were paying before the balance transfer. Ideally, you should try to pay off most or all of your balance before this happens. Divide the amount you owe by the number of months in the balance transfer period to get an idea of how much you should try to pay each month. Resist the temptation to add to your credit card debt, even if you get offers with 0% interest on new purchases, Rossman says.
If you own a home, another option is to use a home equity line of credit to pay off your credit cards. The average rate of a home equity line of credit is 7.3%, according to Bankrate.com, and you usually have up to 20 years to pay off the loan.
But before you borrow against your home, make sure you can make the payments if the economy is going south, says credit expert Jerry Dettweiler. “If you’re late with payments, you put your home at risk.”
Between rising cost-of-living inflation and rising interest rates in response, 2022 has been a costly year. Talk of a recession continues, so 2023 could come with its own financial challenges. And consumers are worried: NerdWallet’s annual study of household debt found that nearly 7 in 10 Americans (69%) have financial concerns about…
As a new year approaches and the holiday buzz sets in, it’s a great time to set financial goals, especially if you’ve been spending a lot lately on gifts and travel and want to improve your financial situation. Solve all of your money problems in…
January Mortgage Rate Forecast Mortgage rates may rise slightly in January, peaking in 2023 before settling at a low level for the rest of the year. stubborn. What will the Federal Reserve do at its next monetary policy meeting, which…
Since the onset of the COVID-19 pandemic, small business owners have faced ever-changing regulations, lack of cash flow, and general economic uncertainty. The year 2022 has brought its own challenges: inflation, rising interest rates, and staff shortages, among others. However, entrepreneurs remain resilient and optimistic about the year ahead. In fact, 66% of small business owners expect to increase their revenue…
Copyright 2023 by KOAM NEWS NOW. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Sandra Block is a senior editor at Kiplinger Personal Finance Magazine. For more information on this and similar financial topics, visit Kiplinger.com.