Stubborn inflation, and high-interest rates, make credit card bills more expensive
HOUSTON - The government reports that inflation slowed slightly, in January, but not as much as was expected.
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That's sure to keep interest rates high, as the Fed tries to push inflation down.
It'll also mean expensive days ahead for people with credit card bills. American credit card debt reached an all-time high of $930 billion at the end of 2022, with an average credit debt of $5,805.
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Americans are leaning more on credit cards in the face of rising inflation, but that means they are drowning in debt. Ted Rossman, senior industry analyst with Creditcards.com, talks about how big the problem has gotten and payoff strategies that can help.
As rates rise, minimum payments will take years to get control of that debt. Certified financial planner Bobbi Rebell says knowledge is power for tackling credit card debt.
Since it likely took time to build the problem, she says you can't be intimidated by the long-term task of fixing it.
"Take some time to think about, first of all, what got you there and stop that behavior. Don't make the problem worse," she said. "That is the most important first step that many people forget: think about what you bought, and maybe what you would do differently."
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It's an important step, with credit card rates the highest they've been in decades, and going higher each time the Fed acts to fight inflation. It all works to make it harder to pay off the balance.
For the average $5,805 balance, and the 20.4% average card rate, Bankrate.com says a monthly minimum $100 payment will take 17 years to pay off the debt. That's nearly double the time needed before the Fed started raising rates, last spring.
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WalletHub says the latest rate hike will cost credit card users an additional $1.6 billion in interest charges, this year.
So, how do consumers get control? There are some aggressive options:
- A 0% balance transfer can offer an interest-free period of a year, or more, to pay off the debt without adding to it. A warning, though, that missing the deadline will mean a higher interest rate will accrue from the start.
- A personal line of credit can offer a smaller APR than a credit card, which is useful as long as you don't keep adding to the credit bills.
- Applying extra money to pay off balances. While some might suggest knocking out a small bill, first, to get a sense of success, most financial experts will say concentrating on the most expensive debts will offer the biggest rewards.
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It all takes some dedication. When it comes to getting control of consumer debt, Rebell says there's nothing wrong with a little 'pain' to appreciate the 'gain'.
"Once you're in the land of not paying off your whole balance, you are paying interest on everything," says Rebell, "You want to make sure you know what is available to you, already, before you pay this high-interest rates."