As U.S. Interest Rates Soar, Four Ways to Manage Credit Cards Right Now

A woman pays with a credit card at a restaurant in Playa del Ingles, Maspalomas on the island of Gran Canaria, Spain, May 3, 2022. REUTERS/Borja Suarez

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NEW YORK, Aug 22 (Reuters) – Try holding your credit card close to your ear, very close. You might hear the soft ticking, ticking, ticking of your rising interest rate.

On May 4, average credit card interest rates in the United States reached 16.41%, according to financial news site Bankrate. As of July 6, 17.01%. As of August 17, 17.67%.

In fact, these rates are at an all-time high since CreditCards.com began compiling data 15 years ago. And further rate hikes from the Federal Reserve are expected on the downside, in a continued effort to contain inflation, putting upward pressure on lending rates across the board.

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“Credit cards were expensive before, they’re more expensive now, and they will be even more expensive by the end of the year,” says Ted Rossman, senior industry analyst for CreditCards.com.

This is obviously bad news for consumers, who were racking up debt in the second quarter of the year.

National credit card debt rose $46 billion for the quarter and $100 billion from the same period last year, according to the Fed’s new Household Debt and Credit Report from New York. This 13% year-over-year increase is the largest in more than 20 years.

Larger debts, coupled with higher interest rates, put some household balance sheets in the danger zone.

“Credit card interest rates always seem to go up and never go down,” says Ed Mierzwinski, senior director of the federal consumer program for advocacy organization US PIRG. “Banks are getting away with it, and have been for a long time. They raise rates every chance they get.”

Often a rise is due to variable rate cards which are tied to the prime rate, so when that rate rises (currently 5.5%) it is passed on to borrowers. Other times, a rate increase may be due to a late or missed payment, which violates the original contract and allows lenders to reset to a higher percentage.

This rising tide of credit card interest rates may be hard to fend off, but you’re not helpless. Here are the tips from the experts.

REQUEST A RATE REDUCTION

Call your lender and see if they’re willing to pay a lower rate – something they’re more likely to do if you’re a longtime cardholder in good standing, not someone who makes late payments or who runs up against credit limits.

When US PIRG once tried this with a sample of consumers, 56% got a discount – with successful applicants getting discounted rates, on average, by more than a third.

MAKE A BALANCE TRANSFER

There’s a neat way to cut those double-digit interest rates right away: arrange a balance transfer to a new card. Obviously, you still have to repay the amount, but at least you can enjoy an extended introductory period of 0% interest.

The biggest deals right now include Wells Fargo Reflect, Citi Simplicity, and Citi Diamond Preferred. Just try to be careful with balance transfers, Mierzwinski says, because frequently closing old accounts and opening new ones isn’t ideal for your credit score.

PAY MORE THAN THE MINIMUM

When receiving a monthly statement, many cardholders simply return the minimum amount due. But you’re playing into the hands of the lenders, resulting in interest income that brings banks about $100 billion a year, according to the Consumer Financial Protection Bureau.

As an example, $10,000 in debt on a card with a 20% rate, making a small monthly payment of $200, will cost you an additional $11,000 in interest alone over time (and take 106 months to recover). to reimburse). So go as far above the minimum as possible and ideally keep no monthly balance at all.

WATCH THE ALTERNATIVES

There are other loan options that may be preferable to a 20-25% dip. A personal loan from your bank is one solution – these currently average around 10%, says Rossman. For someone with good credit, the rates can be more like 6%. Or non-profit credit counseling companies like Money Management International can also help you get a one-time loan at a lower rate.

USE REWARDS WITH CAUTION

Cash back, points and other programs only make sense if you pay off the card in full each month.

“If you get a 1-2% reward, that’s fully offset by the cost of the balance at an interest rate of 15-25% or even higher,” says Mierzwinski. “People are increasingly being manipulated into using their cards – and the credit card companies are laughing all the way to the bank.”

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Editing by Lauren Young and Diane Craft Follow us @ReutersMoney

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