Paying off your credit card debt is a good New Year's resolution.

Paying off your credit card debt is a good New Year’s resolution.

Carrying a balance has always been expensive, but now it’s particularly expensive.

The average interest rate on credit cards in mid-December was 19.42%, the highest rate since 1992. As the Federal Reserve Board continues to raise short-term interest rates to curb inflation , average rates could rise even higher, says Ted Rossman, director of credit cards. Bankrate.com analyst, who tracks interest rates on consumer loans.

It is not uncommon for consumers who are having difficulty paying their bills to pay the minimum payment on their credit cards. But over time, paying the minimum will add thousands of dollars to the amount you owe.

The median amount owed by cardholders carrying a balance is $6,569, according to an analysis by LendingTree, an online lending marketplace. If you have a balance of that amount, your interest rate is 18%, and you pay only the minimum of $165 each month, it will take you five years to pay off the debt, and your total payments will exceed $10,000. (You can calculate your own numbers with Experian’s credit card payment calculator.)

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Over time, paying the minimum will add thousands of dollars to the amount you owe.


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If you have good to excellent credit, one option is to apply for a balance transfer card with a 0% introductory rate. Wells Fargo, Bank of America and Citibank are offering balance transfer cards with a 0% rate for up to 21 months, Rossman says. Most charge a transfer fee of 3% to 5% of the balance.

Once the introductory period is over, the interest rate will increase to the card’s regular rate, which could be even higher than the rate you were paying before the balance transfer. Ideally, you should try to pay off most or all of your balance before that happens. Divide the amount you owe by the number of months in the balance transfer period to get an idea of ​​how much you should try to pay each month. Resist the urge to add to your credit card debt, even if you get offers of 0% interest on new purchases, Rossman says.

If you are a homeowner, another option is to use a home equity line of credit to pay off your credit cards. The average rate for a home equity line of credit is 7.3%, according to Bankrate.com, and you typically have up to 20 years to repay the loan.

But before you borrow against your home, make sure you can make the payments if the economy tanks, says credit expert Gerri Detweiler. “If you fall behind on your payments, you are putting your home at risk.”

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Sandra Block is a Senior Editor at Kiplinger’s Personal Finance magazine. For more information on this and other money-related topics, visit Kiplinger.com.

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