If you have credit card debt, you're falling into a deeper hole every, single, month. Credit card interest rates are astounding and still rising.
"Credit cards rates went up more in 2022 than any other year on record," Ted Rossman, Bankrate.com's senior industry analyst told Investor's Business Daily. On Jan. 18, the average credit card interest rate hit 19.91%, up from 19.85% the previous week, says Rossman.
Rossman predicts the average credit card interest rate will top 20%. LendingTree already puts it at 22.91%.
Also surprising, credit card debt isn't necessarily tied to income level. On average, 46% of cardholders carry a balance from month to month, up from 39% a year ago. Notably, 37% of cardholders who carry a balance make more than $100,000 a year, says Bankrate.com.
If you're carrying credit card debt, experts say you need to do four things now. First, make sure you know the interest rate on your card, and second explore cards that offer deals on balance transfers. You may also want to look into credit counseling, a personal loan or a home equity line of credit (HELOC), though many experts caution against tapping a HELOC.
Credit Card Debt: Digging Out Can Take A Decade Or More
Scared yet? Sorry, but here's some even more frightening numbers.
The average amount of credit card debt is $5,474 per person, says Bankrate's Rossman. At first glance that doesn't seem all that bad. However, if that's your starting point, and you make only minimum payments (at more than 19% interest) you'll be in debt for 202 months or nearly 16.8 years, said Rossman. And the total interest you'll pay is $7,637 (not including the original balance $5,474).
So if you have credit card debt, stop or seriously reduce all discretionary shopping. The only thing you should be shopping for is a credit card balance transfer deal, some of which offer 0% interest for up to 21 months.
Beware: You'll need decent credit to get one of these cards. Typically a credit score of 670 or above will do it, says Rossman.
And some of the cards require a "3% to 5% transfer fee," said Rossman. But if you have a lot of credit card debt and you can get 21 months interest free it can be worth the upfront cost to transfer your balance to one of these cards.
Know Your Card's Interest Rate And Fees
Sadly, cardholders often know more about their credit card's rewards than its interest rates and fees.
Bankrate's research found that 43% of credit card holders have either never switched their primary card or it's been at least a decade since they switched. And 43% of adult cardholders with credit card debt don't know all of the interest rates on their cards.
"Credit cards can work for you or against you," said Rossman. "People get too focused on the rewards. That's a big mistake. The math is upside down if you're paying interest on a credit card balance."
And even if you're not carrying a balance, review your rewards regularly. Mileage rewards used to be a favorite card perk, but many airlines have significantly upped the mileage required for a free ticket or upgrade. Cash back might be a better reward now.
Use A Personal Loan To Consolidate Debt, But NOT A HELOC
If you have a pile of credit card debt, you may want to turn to a bank, credit union or reputable online lender for a personal loan. You can then use the loan to pay off your credit cards and consolidate your debt. But keep in mind that rates, and terms for these loans vary widely from 6% to 36%.
Two pieces of advice: Don't close all the credit cards, keep them open and just don't use them, says Carolyn Warren, author of "Repair Your Credit Like the Pros." She's a former mortgage broker and credit repair specialist. "Available credit on a credit card is a positive aspect for your credit score," said Warren. If you close all your cards, it will hammer your credit score.
Also loan consolidation with a personal loan will only help you if pay the personal loan in short order. "Stretch your payments out for a longer time and you will pay more for the money even at a lower interest rate" than you would on the credit card, said Warren. And, "don't run up your credit cards again."
Also, Warren and other credit experts say to never use a home equity line of credit (HELOC) to pay down your credit cards. "I am 100% against using a HELOC to pay down debt," she said. If you do, you're potentially putting your home on the line for spending too much on dinners out, sneakers and cosmetics.
Remember, legions of homeowners lost their homes in the 2007 real estate bust because they used them like ATMs, refinancing or taking out home equity loans.
Commit To Financial Fitness And Financial Fidelity
Warren says those with credit card debt need to commit to a budget and paying down debt. "You need to write down every single expenditure you make and analyze what is something I need and what is something I want," she said.
She added: "If your credit card debt is so high it's going to take 20 years to pay it off speak to a bankruptcy attorney." Bankruptcy laws vary from state to state — an attorney can help you understand your options and your rights.
Additionally, make sure you and your spouse or partner are aligned on your debt-reduction plan.
Financial infidelity is a term now used by financial advisors. Sadly spouses sometimes hide their spending from each other. "I had a mortgage client who begged me to not tell her husband about the $40,000 of debt she had run up on two credit cards that he didn't know about," said Warren.
You need to understand and address all household spending, says Warren.
Perhaps you don't see your spouse's individual credit card statement and payment history, but credit reporting agencies and collectors do. And in a community property state a collector can chase you for your spouse's delinquent debts, adds Warren.
