Perspective: 7 ways to lower your credit card debt after the Fed rate hike
The average credit card interest rate now tops 20 percent, according to Matt Schulz, chief credit analyst at Lending Tree. “The worst news for cardholders when the Fed raises rates is that it doesn’t just raise rates on things you buy in the future,” Schulz said. “The rate you pay on your current balances goes up, too, usually within a billing cycle or two.
The share of credit card revolvers, or those who carry over a monthly balance, rose 0.6 percentage points to 40.1 percent nationally in the fourth quarter of 2021, the American Bankers Association reported last month. The Fed has said to expect more rate increases if it can’t tame inflation.“What really matters is all of these rate hikes adding up to potentially multiple-percentage-point increases in credit card rates in a single year,” Schulz said.
On paper, the logical method would be to go after debt with the highest interest rate. But what works on paper doesn’t always work in practice. The debt reduction method I recommend is what I call the “Advertisement With the debt dash, you list all your debts starting with the one with the lowest balance. Then use any extra money you can find to apply it to that first card on your list while making the minimum payments on all other debts. Once you’ve knocked off that card, go after the next one on your list, and so on. If two cards have a similar balance, the one with the higher interest rate gets priority treatment.3. Transfer balances to zero percent card.
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