Managing credit card debt when rates are up
To tame inflation, the Federal Reserve began a series of interest rate hikes in March 2022, and rates on credit cards moved in the same direction.
While inflation has cooled somewhat, it may not be until later in 2024 that the Fed begins to cut interest rates. And even then, interest rates are unlikely to return anytime soon to the super-low levels many borrowers became accustomed to before the Fed started hiking rates.
So in the meantime, if you find your credit card debt less manageable these days, here’s a five-step plan to whittle your high-interest credit card debt.
Assess where you stand: Make a list of all your credit card accounts with the balances, interest rates, minimum payment amount and three-year payoff amount listed on your statement, says credit expert Gerri Detweiler.
Search for a low-rate balance-transfer offer:
Surprisingly, generous balancetransfer offers continue to be widely available. However, you typically need a FICO credit score of at least 670 to qualify for the best offers, says Ted Rossman, senior industry analyst with Bankrate. com. Several card issuers are offering 0% balance-transfer promotions for 12 to 15 months — and some last as long as 21 months.
“When you’re talking about going from a 25% interest rate to having a year or more without accruing any interest at all, that can save you real money,” says Matt
Schulz, chief credit analyst at LendingTree. “There tend to be balance-transfer fees associated with those cards, and there may be some restrictions and limits. But even with all of that, you can save an awful lot of money.”
Make a plan to pay off the balance before the rate jumps up:
Divide what you owe by the number of months in your 0% term and try to stick with paying that amount each month, Rossman says. “If you can pay off your entire debt within the allotted time, you could save hundreds, maybe even thousands, of dollars in interest charges.”
If you don’t pay off the full balance by the time the promotional term is over, you’re usually charged the standard, higher rate on the remaining balance.
Ask your bank for deals: If you don’t qualify for a 0% balance-transfer offer from a major issuer, Schulz recommends reaching out to the banks or credit unions where you have a savings account, mortgage or other account to see what they will offer.
Ask your current card issuer to lower your rate:
“Your chances of success are better than you realize,” Schulz says. A 2023 LendingTree survey found that 76% of the cardholders who asked for a lower interest rate on their credit card were approved for one, with an average reduction of six percentage points.