How to pay off your balance


Collectively, Americans owe nearly $1 trillion on their credit cards.

Total credit card debt stood at $986 billion at the start of 2023, unchanged from the record high reached at the end of 2022, according to a new report on household debt of the Federal Reserve Bank of New York.

Typically, balances decline at the start of the year as borrowers begin to pay down their debts after the peak holiday shopping season. “This is the first time in 20 years that we haven’t seen a decrease,” according to New York Fed researchers, citing inflation and a higher cost of living.

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Credit card balances up nearly 20% from a year ago, separate study finds credit industry quarterly report of Trans Union.

The average balance rose to $5,733 over the same period, TransUnion found.

“As inflation hit nearly 40-year highs, many consumers resorted to credit to manage their budgets, leading to record or near-record sales,” said Michele Raneri, vice-president President of US Research and Consulting at TransUnion.

“Unfortunately, credit card debt is only expected to continue to rise for the foreseeable future,” said Matt Schulz, chief credit analyst at LendingTree.

On the heels of another rate hike earlier this month by the Federal Reserve, the average credit card rate is now above 20% on average, an all-time high.

Sky-high APRs make credit cards one of the most expensive ways to borrow money month-to-month and yet many Americans continue to sink deeper and deeper into debt. Although balances are higher, nearly half of credit card holders have credit card debt month over month, according to a separate study. Discount rate report.

However, there are some strategies to help pay off high interest credit cards once and for all. Here’s what the experts recommend:

Five Ways to Tackle High-Interest Credit Card Debt

1. Reevaluate your expenses. Most experts recommend starting with a basic budget. “The truth is, you can’t make a meaningful plan to deal with debt if you don’t know exactly how much money is coming in and going out of your household each month,” Schulz said.

“You may not like what you see, but it’s better to face the reality of the situation than bury your head in the sand.”

Using a spreadsheet or online tool can help you assess where you are spending money and how best to allocate those funds.

2. Plan a winning strategy. According to Russell Nelson, manager of the credit card product acquisition team at Navy Federal Credit Union, there are two ways to approach repayment: prioritize the highest-interest debt or pay off your debt. from smallest to largest amount.

THE avalanche method lists your debts from highest to lowest by interest rate. This way, you pay off the debts that accrue the most interest first. THE snowball method prioritizes your smaller debts first, regardless of interest rate, to help build momentum as debts are paid off.

With either strategy, you’ll make the minimum payments each month on all your debts and use any extra money to speed up paying off a debt of your choice. “You can also consider setting up automatic payments with text alerts on your mobile device to ensure payments are made on time,” Nelson advised.

3. Snag a 0% balance transfer credit card. Cards offering up to 21 months interest-free on transferred balances are one of the best weapons Americans have in the fight against credit card debt, Schulz said.

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To get the most out of a balance transfer, pay off the balance aggressively during the introductory period. Otherwise, the remaining balance will be charged a new annual percentage rate of charge, which is about 23%, on average, in line with new credit rates, according to Schulz.

4. Ask for a lower credit card rate. If you have a balance, try calling your card issuer to ask for a lower annual rate. “You really have nothing to lose,” Schulz said.

In fact, 76% of people who asked for a lower interest rate on their credit card in the last year got one. according to a LendingTree report. You may also be able to get lower annual fees, a higher credit limit, or waive late fees, Schulz added.

5. Take advantage of high-yield savings accounts. In addition to paying off your debt, set aside money to build up your emergency reserves, which will prevent you from racking up more debt while you work to pay off your current balance.

“Solid savings are the key to getting out of debt,” Schulz said.

Take advantage of the competitive rates of an online bank, added Greg McBride, chief financial analyst at After years of bottoming out yields, some high-yielding one-year online savings accounts and certificates of deposit are now as low as 5%.

“This could be the ‘last call’ for savers,” McBride said, adding, “CD yields on one-year-plus maturities have peaked and now is the time to lock in.”

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