Credit cards are a flexible and widely accepted payment option that allow consumers to spread large payments over time. But credit card interest rates have been rising steadily and recently surpassed 17% for just the second time, according to data from the Federal Reserve.
The average rate on all credit card accounts rated at interest was 17.13% in the third quarter of 2021. This is up from 16.3% in the second quarter and 15.91% at the start of the year. year. The only other time credit card rates were this high was in 2019, when interest rates soared to 17.14%.
BORROWERS WHO CONSOLIDATED CREDIT CARD DEBT SAVED OVER $ 2,000 ON AVERAGE, DATA SHOWS
The rapid rise in credit card rates – coupled with a 10.9% increase in revolving debt balances in the second quarter of this year, according to the Fed – can spell disaster for consumers struggling to make payments. regular monthly payments on their credit balances.
Having high interest month-to-month revolving credit card debt can cost you hundreds or thousands of dollars in interest payments over time. Fortunately, there are a number of ways to pay off credit card debt faster and save money in the long run.
Read on to learn more about credit card consolidation and compare your options in the sections below. When you’re ready to get your credit card debt under control, visit Credible to compare the interest rates of several debt consolidation financial products.
AVERAGE INTEREST RATES ON PERSONAL LOANS FALL TO LOW LEVEL IN 2021, FED REPORTS
3 Proven Methods For Credit Card Consolidation
Since credit cards have some of the highest interest rates on the market, making the minimum payment each month is not a very effective method of paying down debt. In fact, it could cost you thousands of dollars in compound interest over time, depending on your account balance and the interest rate.
Here are three common ways to pay off your credit card debt faster:
- Personal loans
- Balance transfers
- Refi collection
Consider each option in the sections below, keeping your unique financial situation in mind.
DEBT SNOWBALL METHOD VS. DEBT AVAILABILITY METHOD
1. Personal loans
Personal loans offer quick lump sum financing that you pay off in fixed monthly installments over a set period of time, usually a few years. Since personal loans have a consistent repayment schedule and lower interest rates, they are commonly used to consolidate high interest credit card debt.
Unsecured personal loans do not require collateral, which means eligibility and interest rates are highly dependent on your credit history and debt-to-income ratio. Applicants with good credit will receive the best loan offers with lower interest rates, while those with bad credit should establish their credit score before applying.
Raising your credit score can be as simple as checking your credit report for errors or opening a secured credit card to increase your available credit and lower your credit utilization rate.
When you are ready to apply for a debt consolidation loan, be sure to compare the rates on Credible so you know you are getting the best deal in the long run.
PAY A STUDENT LOAN WITH A CREDIT CARD? HERE’S WHAT TO CONSIDER
2. Balance transfer credit cards
It might seem counterintuitive to take out another credit card to pay off your debt, but you may be able to save on interest charges during the debt repayment process with a balance transfer.
The key is to find a credit card issuer that offers a 0% APR introductory period – usually up to 18 months. Once you’ve done that, perform a credit card balance transfer to transfer your debt from your checking account to a new credit card. Then be sure to pay off your debt in full before the promotional period expires.
There are a few things to keep in mind when using a balance transfer:
- You may need to pay a balance transfer fee worth around 3-5% of the total debt transferred.
- You will need good credit to qualify for a balance transfer card. Keep making payments on time to make sure your credit score doesn’t take a hit before you apply.
- Avoid taking on new debt during this time so you don’t fall into bad habits of accumulating more credit card debt than you can afford.
If you decide to use a balance transfer card for debt relief, compare the offers of several credit card issuers on Credible’s online financial marketplace.
CONSOLIDATION OF DEBT VS. DEBT SETTLEMENT: WHAT’S THE DIFFERENCE?
3. Mortgage refinancing with withdrawal
Home values ââare at an all time high, which means you could be sitting on tens of thousands of dollars in untapped equity. One way to pay off your credit card accounts at a lower interest rate is to access that equity through cash refinance.
Cash mortgage refinancing involves taking out a larger mortgage than what you currently owe on your home loan, pocketing the difference in a lump sum to use as you see fit. With mortgage rates still close to historic lows, according to Freddie Mac, now may be the time to refinance your mortgage.
Keep in mind that the mortgage loan repurchase will probably increase your monthly payments since you take out a larger home loan.
Contact an experienced loan officer at Credible to see if this is the right debt repayment option for you.
HOW A CREDIT ADVISOR’S DEBT RELIEF PROGRAMS CAN HELP YOU PAY YOUR LOANS
Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.