No one wants to hear their chances of going deeper into debt have significantly increased, but it’s the truth—especially if you’re already in debt. With the Federal Reserve’s latest rate hike (the fourth this year), credit card interest rates will be going up as well.
Although the actions taken by the Federal Reserve are a result of soaring inflation due to the COVID-19 pandemic and the Russian-Ukraine war, many people have already been experiencing the toll it’s taken on their wallets.
Whether you’re still waiting for the impact of the rate hike to hit your interest rates, or you’ve already been affected, getting a plan in order will benefit you in the long run. Rates are expected to increase again, sending average card interest rates to all-time highs—possibly 18%–19%.
Ultimately, if you have credit card debt (and a not-so-great credit score), you’re going to end up paying more if you don’t take actions that will soften the financial blow.
Focus on Debt Management
While it seems counterproductive, people with excellent credit are more likely to see less interest rate hike impacts, while people with poor credit usually already have a higher APR and will be more greatly affected by the interest rate hikes.
Paying the minimum might have already been difficult, and if it’s about to get even harder for you, consider seeking the advice of a credit counselor. Not only can a counselor help you create a manageable budget, but they can also enroll you in a debt management plan. Right now, especially if you’re at risk of falling into deeper debt, a debt management plan can help you not only pay off your loans but also avoid the full brunt of rising interest rates.
How? Well, if you’re approved for a debt management program, your credit counselor will work with your lenders to lower your interest rate and consolidate your loans into one affordable monthly payment that’s designed to be paid off in three to five years.
It’s important to remember that you’re not alone. According to CNBC, credit card balances rose year over year—hitting a 13% increase by the second quarter of 2022.
Non Profit Credit Counseling
Here are some other tips to help you combat rising credit card interest rates:
Stop using your credit cards.
If you’re not using them, you can avoid falling deeper into debt. Make a budget and stick to it. This means cutting costs and deciding how you’re going to pay your debt off. The recommended approach to get out of debt is to follow either the avalanche method or the snowball method.
Talk to your lender.
Call your credit card companies and discuss repayment options that can help you pay back your loan more efficiently, including the possibility of lowering your interest rate.
Try to find a 0% credit card offer.
Transferring your balance to a card company offering 0% APR can help you weather a period of high-interest rates while allowing you to pay off your loan faster, ultimately saving money.
These are stressful financial times, but having a strategy can help you feel better about your financial future while also helping you strengthen your current situation.