For people who are $10,000 in credit card debt, or any amount, now is the time to pay it off before the Federal Reserve raises interest rates even further.
“This is a very, very difficult time to be in credit card debt,” Matt Schulz, chief credit analyst at LendingTree, told Yahoo Finance Live (video above).
Credit card debt balances rose $38 billion to $925 billion in the third quarter of 2022, according to the latest data from the New York Federal Reserve, marking a 15% year-over-year increase and the jump largest in over 20 years.
At the same time, credit card rates have risen rapidly as the Fed raises its benchmark rate to combat inflation. The average rate on a credit card rose to 20.4% in November, the New York Fed found, about 2 percentage points higher than the previous quarter and the highest level since the Fed first began tracking in 1994. .
The best way borrowers could reduce that debt is to “really try to control that interest rate,” Schulz said. These are the three things you can do.
Get a 0% balance transfer card
Instead of paying 20% interest, you pay 0% before the Fed raises rates again.
“One of the best tools in your arsenal against rising interest rates is a 0% balance transfer credit card,” Schulz said. “It may seem counterintuitive for people to get a new credit card as a way to fight credit card debt, but these cards are widely available, especially if you have good credit.”
With a 0% balance transfer card, borrowers can avoid paying interest on transferred balances for up to 21 months, depending on the card’s promotional terms. But borrowers need to act fast because some lenders may shorten the introductory periods on these cards as the Fed continues to raise rates, Schulz said.
“While rates have gone up like crazy and it’s a daunting time for anyone with credit card debt, a tool like a 0% balance transfer card is a very, very good option,” Schulz said.
Get a low interest personal loan
A personal loan can also be used to pay off your credit card debt, as long as you qualify for a loan with a lower interest rate than your current credit card.
In addition to having lower interest rates than credit cards, personal loans also have payoff schedules and balances you can’t add, so you can avoid increasing your debt. Another big plus: When you pay off your credit card debt in full with a loan, you can boost your credit score almost instantly.
Still, it’s not a free lunch and you need to be disciplined to pay off the personal loan balance. Late payments can hurt your credit score. To get the best loan terms, shop around.
Request a lower APR
Another option that many credit card holders don’t think of is as simple as asking the credit card issuer for a lower interest rate. Last year, 70% of cardholders who requested a lower APR got away with it, according to a report by LendingTree.
“In some cases, it’s a matter of just calling and asking,” Schulz said.
But the best way is to come with “a little bit of ammunition,” Schulz said, like other credit card offers you’ve received in your email or seen online. Present it to your issuer when you have it on the phone, indicating that you are ready to accept the offer of a card that has a much lower interest rate unless it is matched or beaten.
“Chances are if you’ve been a good customer, they’ll at least listen to you and work with you,” Schulz said.
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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