Credit cards are one of the most expensive ways to borrow money month-to-month, and yet many Americans continue to take on ever-increasing debt.
After yet another rate hike by the Federal Reserve, the average credit card rate is now over 20%, an all-time high, making it even harder to get out of debt.
While balances are growing, more cardholders are also in debt every month, according to a new study Bank Interest Report.
More from Personal Finance:
Paying in cash helps shoppers “forget” secret pleasures.
61% of Americans live paycheck to paycheck
How the Fed’s quarter rate hike is affecting you
According to the report, 47% of borrowers now transfer their card balance each month. And of those who have credit, 60%, or around 54 million people, have been in debt for at least a year.
“The situation is significantly worse than it was a few years ago,” said Ted Rossman, senior industry analyst at Bankrate. “More people carry more debt and at very high interest rates.”
How to fight high-interest credit card debt
1. Grab a credit card with 0% balance transfer
“My top tip is to sign up for a 0% balance transfer card,” Rossman said. “That can save you up to 21 months of interest, and that’s a tremendous tailwind that can propel your path to debt repayment.”
Cards with a term of 12, 15 or even 21 months No interest on balances carried over is one of Americans’ best weapons in fighting credit card debt, added Matt Schulz, LendingTree’s chief credit analyst.
To get the most benefit from a balance transfer, aggressively pay off the balance during the introductory period. Otherwise, a new effective annual interest rate will be applied to the remaining balance, which Schulz says averages around 24 percent and thus corresponds to the rates for new loans.
In addition, there may be restrictions on the transfer amount and associated fees. Most cards charge a one-off fee to transfer the balance, typically around 3% of the bill, but there may be an annual fee for the card.
2. Choose a repayment strategy
There are two ways you can approach repayment: prioritize the debt with the highest interest rate, or pay off your debt from the smallest to the largest balance. These strategies are referred to as the avalanche or snowball method. According to a separate analysis by , it can help consumers pay off their debts up to 100 months sooner LendingTree.
The avalanche method lists your debt from highest to lowest interest rate. That way, you pay off the debt that earns the most interest first. The snowball method Prioritize your smallest debt first, regardless of interest rate, to gain momentum in paying down debt.
With either strategy, you make minimum payments on all of your debt each month and invest excess money in accelerated repayment of a debt of your choice.
“People might tell you that there’s an absolute correct answer as to which method is best,” Schulz said. “You are wrong. That’s not the case. It depends a lot on each individual’s financial circumstances and even their personal style. And finally, if you start out with a method and you don’t like it, there’s nothing to say you can’t switch strategies.”
https://www.cnbc.com/2023/08/07/carrying-credit-card-debt-here-are-the-best-payoff-strategies.html carry credit card debt? Here are the best withdrawal strategies