With inflationary headwinds stubbornly persisting, Americans are increasingly adding to their credit card balances. A new report from the St. Louis Federal Reserve Bank shows balances on credit cards and other revolving credit products are fast approaching $1 trillion.
That’s a reversal from three years ago when COVID-19 lockdowns resulted in a dramatic drop in credit card spending. Credit card balances actually declined to $750 billion in 2021. Consumers have added nearly $250 billion to their credit card accounts in just two years.
Making matters worse, the Federal Reserve’s campaign to raise interest rates to reduce inflation has boosted the average credit card interest rate to 24%, the highest since the 1980s. Personal finance experts concede the tasks can be challenging but say there are a few tools that can help an overburdened consumer reduce their debt.
“If you're struggling to pay down your balance, use a 0% balance transfer card to save on interest,” said Andrea Woroch, a personal finance author. “This will buy you more time to pay off your balance without interest piling up and could save you a lot of money and give you relief in your monthly budget to afford higher prices.”
While that can help, remember that many balance transfer cards charge a fee, based on a percentage of the transferred balance. Most fees are 3% but some may be as high as 5%. ConsumerAffairs has researched the best balance transfer cards here.
Taking out a personal loan to pay off a credit card balance is another option. In most cases, the interest rate on a personal loan is significantly less than a credit card.
To pick the best lender for you, you’ll want to compare features, including annual percentage rate (APR), repayment terms, fees and loan amounts. Again, ConsumerAffairs researchers have reviewed lenders and picked the best eight offers.
Once you reduce interest charges, Markia Brown, certified financial education instructor at Money Plug, says you should avoid the mistake of sliding back into bad habits.
“This can manifest in several ways, such as overspending, accumulating high-interest debt, inadequate savings, and lack of investment for the future,” told us. “To avoid these pitfalls, it is crucial to establish clear financial goals, create and follow a budget, prioritize saving and investing, and be disciplined with spending habits.”