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How to Pay Off Your Credit Card Debt as Interest Rates Jump

Sometimes a life raft looks like a credit card.

In an economy that has produced the highest inflation rate since the early 1980s, Americans are struggling to keep up with day-to-day expenses and increasingly rely on credit cards to stay afloat.

Amid a dramatic rise in the cost of living, credit card balances jumped 13% in the second quarter of 2022, the largest year-over-year increase in more than 20 years, the Federal Reserve Bank of New York reported. .

Total credit card debt is back at $890 billion, just shy of 2019’s record high.

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“Many are relying on credit cards to pay for basic necessities, especially with inflation driving up prices,” said Allen Amadin, president and CEO of American Consumer Credit Counseling.

The number of people with credit cards and personal loans hit a record high in the second quarter, TransUnion’s latest Credit Industry Insights report found.

Credit card interest rates are reaching record highs

Meanwhile, the Federal Reserve is taking aggressive steps to tame inflation, including hiking interest rates, which will increase the cost of borrowing money in order to slow spending, but also mean carrying a balance from month to month will cost more than it does now. .

Since most credit cards have variable rates, there is a direct connection to the Fed’s benchmark. As the federal funds rate rises, so does the prime rate, and credit card rates follow. Cardholders typically see an impact in a billing cycle or two.

Average credit card rates are currently just over 17%, significantly higher than almost every other type of consumer loan, and they could rise to 19% by the end of the year — an all-time high.

Now more than ever it is critical for Americans to keep up with the daily cost of living.

Allen Amadin

President and CEO of American Consumer Credit Counseling

Reducing imbalances ‘critical to economic health’

“Reducing credit card debt is always critical to financial health,” Amadin said. “However, Americans are able to live up to daily living expenses and still put money aside for savings.”

Here are his three best tips for paying off credit card debt once and for all.

  1. Create a budget: For starters, using a worksheet or online tool can help you see where you’re spending money and how to best disperse that money. It helps you identify regular expenses that could siphon money away from your long-term goals.
  2. Cost reduction: While trying to reduce debt, make sure to temporarily eliminate all unnecessary expenses like streaming subscriptions, dining out or impulse purchases. Cutting those expenses can help you stick to a budget, stop adding to your revolving balance and pay off more debt.
  3. Pay more than the minimum: Paying off your credit cards on time helps you avoid late fees and penalties. But don’t pay the required minimum – it won’t do much to avoid hefty interest on the balance. Paying more than the minimum alone will reduce the amount of interest you pay each month and help you reach your goal.

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