It really pays to reduce your balance as soon as you can.
- Credit cards tend to charge variable interest, so your debt could get more expensive over time.
- With consumer interest rates set to rise this year, it pays to get out of credit card debt as quickly as possible.
Anytime you run up a balance on your credit cards, it’s a good idea to try to pay it off as quickly as possible. Doing so could limit the extent to which you accrue interest and, as a result, have financial hardship.
But if you started 2022 with a credit card balance, or if you’ve racked up one since the calendar ended, then it’s really important that you do what you can to reduce that debt. If you wait, your debt could end up costing you more.
The problem with interest on credit cards
Credit cards are famous for charging a lot of interest on the balances you carry. But that’s not the only problem with credit cards. Typically, the interest rate you pay on your credit card debt will be variable, meaning it has the potential to increase over time.
Meanwhile, there’s reason to expect a general spike in consumer interest rates this year, and that extends to credit cards. After several years without raising interest rates to allow the US economy to recover from the financial blow of the pandemic, the Federal Reserve has made it clear that it intends to start raising interest rates this year.
This does not mean that the Federal Reserve can dictate the interest rates your credit cards charge you. The Federal Reserve doesn’t actually set consumer interest rates at all, so it has no say in the rate it sets on a mortgage or the interest rate your savings account pays you for keeping your money there. Rather, the Fed decides what interest rates banks charge each other for short-term loans.
But the Fed’s decisions tend to influence consumer interest rates. And with the Federal Reserve planning to raise rates, there’s a good chance borrowing via credit card balance will get even more expensive as 2022 progresses. That’s why it really pays to reduce your existing debt quickly if you can.
How to pay off credit card debt efficiently
You have several options when it comes to paying off your credit card debt. You can pay off your cards in order of highest to lowest interest rate, or you can try consolidating your debts through a balance transfer. Many balance transfer offers come with a 0% introductory APR, so if your credit is strong, it’s worth seeing if you qualify for one.
Of course, you’ll also need to free up money to reduce your debt. You may need to modify your budget and reduce some expenses. Getting an extra hustle on top of your main job also works for this purpose and may be easier than cutting your expenses if you’re already living pretty frugally.
While we don’t know how much more expensive it will be to carry a credit card balance this year, there’s a good chance that carrying that type of debt will be more expensive. If you can pay off your credit cards (or at least some of your debt) sooner rather than later, it makes sense to do so.
The best credit cards end interest until 2023
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