Home Markets In credit card debt? Here are some expert tips to help you pay for it.

In credit card debt? Here are some expert tips to help you pay for it.

by SuperiorInvest

Credit cards are the Achilles heel for most people.

Collectively, Americans now owe $1.13 trillion on their cards and the average balance per consumer is up to $6,360, both all-time highs.

Not only are more cardholders going into debt month after month, but they are also falling further behind on payments, recent reports show.

“While dealing with $1 trillion in credit card debt can be overwhelming, the reality is that this number is expected to rise,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and former interim president of the White House. Council of Economic Advisors.

“Americans are still dealing with persistent inflation and continually rising interest rates, forcing them to rely more on credit cards,” Philipson said.

More from Personal Finance:
Average credit card balances rise 10% to record $6,360
Credit card debt reaches “staggering” $1.13 trillion
Americans can't afford an unexpected $1,000 expense

Credit cards are already one of the most expensive ways to borrow money. The average credit card charges a record 20.74%, according to Bankrate.

But there are proven profitability strategies that work, experts also say. Here's his best advice for tackling that high-interest debt once and for all, including one analyst's “favorite tip.”

Two Ways to Boost Debt Payment

1. Try a 0% Balance Transfer Credit Card

“My favorite tip is to sign up for a 0% balance transfer credit card,” said Ted Rossman, senior industry analyst at Bankrate.

There are cards that offer 12, 15 or even 21 months interest-free on transferred balances, he added, and “these allow you to consolidate your high-cost debt into a new card that won't charge interest for up to 21 months.” in some cases.”

Those offers are “pretty much the best tool you have against credit card debt,” added Matt Schulz, chief credit analyst at LendingTree.

To get the most out of a balance transfer, aggressively pay off the balance during the introductory period. Otherwise, a new annual percentage rate will be applied to the remaining balance, which is about 24.6%, on average, in line with rates for new loans, according to Schulz.

Additionally, there may be limits on how much you can transfer, as well as associated fees.

Most cards have a one-time balance transfer fee, which is usually around 3% of the account, but “it's becoming more common to find cards that charge a 4% or 5% balance transfer fee, which is something that people should keep in mind.” “Schulz said.

Borrowers can also refinance with a lower-interest personal loan. Those rates have also increased recently, but at just under 12%, on average, they're still well below the current credit card average.

Otherwise, ask your card issuer for a lower APR. In fact, 76% of people who applied for a lower interest rate on their credit card last year got one, according to a report from LendingTree.

2. Choose a payment strategy

There are two ways to approach payment: prioritize the debt with the highest interest or pay off your debt from the smallest balance to the largest. Those strategies are known as the avalanche or snowball method, respectively. Using any of them can help consumers pay off debt up to 100 months sooner, according to an independent analysis by LendingTree.

The avalanche method allows you to list your debts from highest to lowest based on interest rate. That way, you'll start paying off the debts that accumulate the most interest first. The snowball method prioritizes your smallest debts first, regardless of interest rate, to help gain momentum as debts are paid off.

With either strategy, you'll make the minimum payments each month on all your debts and put the extra money toward accelerating payment on a debt of your choice.

“If I had to pick one, I'd probably choose avalanche because the math works better,” Schulz said, “but ultimately, it doesn't really matter: It's about choosing the one that will be most motivating for you and the one that you'll probably stick with.”

Subscribe to CNBC on YouTube.

Source Link

Related Posts