Interest rates are expected to rise again, making it a good time to start paying off those expensive credit card debts as soon as possible.
APRs on credit cards are currently just over 16%. With the Federal Reserve on a cycle of rate hikes and a half-point hike on the table for each remaining session this year, APRs are likely to rise.
They could even surpass the current record high of 17.87% set in April 2019.
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That could pose a problem for Americans with outstanding bills. Credit card balances hit $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, up from the previous quarter.
“The number one key to getting out of credit card debt is not paying high interest on that debt,” said Suze Orman, a personal finance expert.
Look for lower interest rates
One of the first steps Orman recommends for those looking to reduce credit card debt is to see if you can lower your interest rates.
This way, you can pay off your debt faster and ensure that more of your money is used to pay off your debt instead of accumulating interest.
There are a few ways to do this, such as For example, transferring your balance to another credit card with 0% interest for a period of time, taking out a personal loan with a lower interest rate to pay off your balance, or working with a Schufa advisor will consolidate your debt with a lower interest rate.
Those options depend on your personal situation and credit history, Orman said. For those with lower scores, she recommends contacting the National Foundation for Credit Counseling for assistance in lowering your interest rate and completing a payment plan.
Choose a method
When you’re paying off your debt while keeping your cards open, there are generally two methods to wipe out a balance, according to John Scherer, a board-certified financial planner and founder of Trinity Financial Planning in Madison, Wisconsin.
One is to round up all your outstanding debts on balance and start paying off the smallest ones.
“Then you get going,” said Scherer. “You see some of these things falling off the books, and it feels really good.”
The second model that Scherer personally recommends to clients is to look at all outstanding debts and pay off the one with the highest interest rate first. Over time, this means paying less money to pay off your debt because you’re tackling the highest interest rates right away.
Orman also recommends this approach. She tells you to round up your credit card debt and add up all the minimum payments you owe each month. From there, add 20% or more to your total payment and apply it to the debt with the highest interest rate. Once that’s paid off, roll that extra payment onto the next card, and then onto the next until it’s all wiped away.
Build personal savings
“What you might want to do is take all your credit cards, put them in a plastic bag and put them in the freezer,” said Suze Orman, a personal finance expert.
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https://www.cnbc.com/2022/05/13/strategies-to-pay-off-credit-card-debt-before-interest-rates-rise.html Strategies to pay off credit card debt before interest rates rise