The cost of any goods has increased over the years. And if you have credit card debt, it also gets more expensive because in March 2022, the interest rate increased by 25 basis points; in May, it increased by another 50 basis points, and this series of changes will continue.
The Federal Reserve is forced to adjust the interest rate due to the highest inflation rate since the first half of the 1980s to save the American economy. In other words, Fed changes the federal funds rate; it affects the prime rate – it's the rate that banks require from customers with a high credit rating.
Financial institutions that issue credit cards add to the prime rate for setting their interest rates. If the prime rate increases, so do the amount people who have debts will have to pay.
Have you read all this frightening data? How good are you! And now forget about everything that we told above, and pay attention to such a moment: if you have a large credit card debt, no matter how the Fed manipulates. Your financial obligations, in any case, have been and will be expensive.
How much is debt worth over time?
If your credit card debt is about $10,000 per month and the interest rate is 18%, you will only have to pay $1,800 per year in interest. After changing the rate to 18.25%, annual payments will increase by only $25.
Technically, this does not mean a rate hike but a gentle uphill climb. But $1,800 is already a lot, and that's without considering that you have to spend an additional amount that you may not be able to pay back. Bills do not disappear just because you have many financial obligations, but credit card debt consolidation allows to improve the situation.
That's why you don't need to look for effective ways to relieve stress after watching the following news release. It's helpful to face money issues head-on and how to break in a credit card debt cycle.
Akeiva Ellis, financial planner and co-founder of The Bemused, a brand of economic literacy for young people, says the most challenging step is to rip off the Band-Aid and perform simple math operations to figure out how much money you owe. But if you could get to this point, it remains to develop a qualified plan. Don't let debt weigh you down. The sooner you figure out the numbers and create a logical payment plan, the easier it will be to breathe. It's essential to consolidate credit card debt in time.
How to reduce interest payments
As of the end of summer 2021, the average FICO score in the US has risen to 716, driven primarily by clients with low credit ratings (FICO scores of 690 or higher are considered a good credit history). According to Bruce McClary, vice president of communications at the National Foundation for Credit Counseling, when people apply for the account they have, their credit score is lower. He advises checking your credit report and score from time to time to see if you suddenly moved into a higher range of scores. In this case, you can agree on a more loyal interest rate on your credit card – no need to wait for credit card debt forgiveness.
Don't forget about debt consolidation
If your credit score improves, you can also count on receiving a credit card with a balance transfer with a no-interest trial period or a lower-interest individual loan. Both options provide a reprieve from high-interest rates but remember that a lot depends on the terms you qualify for. In the case of credit card consolidation, the interest rate will increase after the end of the trial period.
Analyze your budget
The more money you are willing to spend on your monthly credit card payment, the faster you can eliminate all debt. But that's easier said than done, given prices are constantly rising. McClary reminds us that interest rate raising doesn't happen in a vacuum; other events increase the economic pressure on Americans. If you don't know how to make your financial plan, Bruce recommends asking for help from professionals; they explain eight things you should know about credit card debt. Bruce says that all people need to do is be a little more proactive; then they will thank themselves for it.
Choose a repayment method
It allows being collected and mobilized, especially for people who have several debts simultaneously. Ellis tells about the debt avalanche repayment method; when you list your debts from highest to lowest interest rate, make the minimum payments on each financial obligation. Use additional funds to pay off debt with the highest interest rate first. After paying it off, focus on the next debt on the list, and so on until the debt is completely eliminated.
Ellis informs us that for most people, the most expensive thing is credit card debt; that's why she advises clients to concentrate on them.