All costs continue to rise. And if you happen to be in credit card debt, it will be a little higher, thanks to the series of interest rate hikes starting this month.
Inflation has been the highest since the early 1980s, and the Federal Reserve is adjusting interest rates to stabilize the US economy. That is, the Fed changes the federal funds rate and changes the prime rate. This is the rate at which a bank charges its customers a high credit rating. The credit card issuer sets the interest rate in addition to the prime rate. Therefore, as the prime rate goes up, so does the amount you pay when you are in debt.
Did you get them all? You look amazing. Forget what you just read and pay attention to this part. If you have a lot of debt on your credit card, it doesn’t matter what the Fed is doing. Your credit card debt has always been high and will continue to be high.
The true cost of credit card debt over time
If your credit card has a monthly balance of $ 5,000 and the interest rate is 16%, you will spend $ 800 per year. If the interest rate rises to 16.25%, that’s equivalent to an additional interest of only $ 13 a year.
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Technically, it’s a gentle uphill, which means it’s not a rate hike. But $ 800 is already a lot and it doesn’t take into account the fact that you still have to spend extra money that you may not be able to repay. The bill doesn’t stop just because you’re in debt.
For this reason, it is useless to grab a stress ball while watching the news. It is useful to face the problem of money head-on.
“The hardest part is getting rid of the band-aid and summing the numbers to see how much you’re actually borrowing,” said The Bemused, a certified financial planner and youth financial literacy brand. Says founder Akeiva Ellis. “But if you can achieve that point, it’s all about really planning. Don’t let your debt overwhelm you. The sooner you face the numbers and plan to pay them, the more you breathe. It will be easier. “
How to pay low interest
— Shop for a better deal: Average FICO score for the United States By August 2021, it had increased to 716, which was more common among people with low credit scores. (FICO scores above 690 are considered good credits.) “When you sign up for an account you have, your credit score may be lower,” said Senior Vice, Communications, National Foundation for Credit. President Bruce McClary says. counseling. He recommends checking your credit report and score to see if you have moved to a higher score range. In that case, you may be able to negotiate a better interest rate with your credit card.
— Consolidate your debt: its higher credit score may also qualify you Balance transfer A credit card with an interest-free promotion period or a low-interest personal loan. Both of these can give you a pardon from a high degree of interest, but keep in mind that it depends on the conditions under which you can qualify. Also, for balance transfer cards, the interest rate will return immediately after the 0% period ends.
— Review your budget: The more money you can apply to your monthly credit card payments, the faster you can get out of debt. But it’s easier to say than it is done in the era of higher prices. “Rising interest rates doesn’t live in the void,” says McClary. “Other things continue to increase financial pressure on all Americans.” If you don’t know where to start, McClary gets budget support from a financial counselor or a nonprofit credit counseling agency. Is recommended. “I will thank you later for whatever you can do to help people act positively.”
— Use Debt Repayment Method: This helps maintain organization and motivation, especially if you have multiple debts at the same time. Ellis proposes a debt avalanche repayment method. This method lists the debt in order from highest interest rate to lowest interest rate, pays the lowest payment for all debts, and applies the extra money within the budget to the highest interest rate debt first. Once you’ve paid it off, focus on the next debt on the list. “For most people, credit card debt is their most expensive debt,” says Ellis. “So that’s usually something I recommend people to focus on first.”
This column was provided to The Associated Press by the personal finance website Nerd Wallet. Sara Rathner is a writer for Nerd Wallet. Email: email@example.com.. Twitter: @SaraKRathner.
FICO: The average FICO score in the United States is 716, indicating an improvement in consumer credit behavior despite a pandemic. https://www.fico.com/blogs/average-us-ficor-score-716-indicating-improvement-consumer-credit-behaviors-despite-pandemic
NerdWallet: What is a balanced transfer, and should I do it? https://bit.ly/nerdwallet-balance-transfer
Copyright 2022 AP communication. all rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
With Your Debt: Forget the Fed and Repay Your Credit Card Debt | Lifestyle
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