If you owe money on your credit cards, you’re definitely in good company. Sometimes credit card debt is unavoidable, such as if you’re stuck with an expensive home or car repair and don’t have the money in savings to cover it.
But if you have a credit card balance, now is a good time to do what you can to pay it off. This is because your balance has the potential to become more expensive over time. In fact, the interest rate on your credit card debt could end up going up sooner than expected for one important reason.
Your debt could start to cost you more
When you lock in a fixed rate loan, such as a home equity loan or personal loan, you benefit from the same interest rate being applied to your debt for the duration of your repayment period. But when you carry a credit card balance, you don’t get that benefit. On the contrary, credit card interest rates can be variable, which means that the interest rate you initially pay on your debt can increase over time.
This is a risk faced today by those who have balances on their credit cards. The Federal Reserve plans to meet later this month, and there’s a good chance it will choose to raise interest rates again. The Fed has actually been raising rates all year in an attempt to calm inflation. And if he implements another rate hike at the end of July, it could hurt credit card borrowers significantly.
That’s why now is a really good time to work on reducing your existing credit card balances. The sooner you do this, the more financial hardship you could save yourself.
How to Get Rid of Credit Card Debt
If you have a large balance on your credit card, you may not be able to eliminate it completely anytime soon. But any amount you can reduce will mean less interest expense.
To that end, it pays to dive deep into your expenses and find some to cut. Any money you can free up can be used to reduce your existing balances. Likewise, if you are able to work on the side, the income you bring in can be used to pay off your debt.
In the meantime, if you owe money on different credit cards, it pays to consider doing a balance transfer if your credit is strong and therefore you are likely to qualify for one of these offers. This is a good way to consolidate your debt, and since many balance transfer offers come with an introductory interest rate of 0%, it’s a good way to give you an interest reprieve while you work to pay off your balance.
Another option to consider is taking out a personal loan or home equity loan, using its proceeds to pay off your credit cards in full, and then paying off that loan in installments. The advantage is to lock in a fixed interest rate on your debt before the loan becomes more expensive.
While credit card debt is bad news right now, it’s an especially dangerous thing in light of potential interest rate hikes. The best way to protect yourself is to take steps to get yourself out of debt, while making it as inexpensive to pay off as possible.
Check out The Ascent’s best credit cards for 2022
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