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Credit card debt is a growing problem national with the current total number sitting at $1.14 trillionthe highest level on record. This rising card debt is paired with a related trend: more and more people are defaulting on their payments. About 9% of credit card payments now serious arrears and about 20% of credit card users has maxed out.
Part of the problem is that sustained inflationary pressures, debt levels are still high and a the job market is weakening has made it difficult for many to manage both everyday expenses and credit card debt payments. Additionally, some cardholders are forced to use their credit cards to cover essentials like groceries, rent and gas. When that can bridge the gap between income and expenses, the average credit card rates close to 23%, so interest costs can compound quickly.
As this challenge mounts, it’s important to make sure you’re up to it deal with your card debt in the most efficient way possible – while also avoiding some big mistakes this fall. By addressing the following issues, you will be better prepared to prevent your debt from spiraling out of control.
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3 big credit card debt mistakes to avoid this fall
Be sure to avoid three big credit card debt mistakes this fall.
Assuming that credit card rates will drop (and make your debt lower)
With the Federal Reserve expected to reduce rates by 25 basis points in September, you may be in your assumption credit card rates will be reduced in tandem, making debt easier to manage. However, this assumption can lead to dangerous errors.
While rate cuts can lower interest rates on other types of loans, credit card rates are less likely to respond quickly to Fed rate changes, if at all. This is because credit card interest rates are tied to various factors, including the prime rate and the issuer’s internal risk calculations. So, despite the Fed rate cut, credit card rates it is impossible to collapse significantly in the near term.
With credit card APRs currently at record highs, waiting for rates to drop can be a costly decision. You may want to take proactive steps to get rid of your debt. Such strategies pay more than the minimum or consolidate your debt can help reduce the amount of interest you pay each month. Delaying your efforts in the hope of lower borrowing costs can only lead to higher overall balances.
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Allow interest charges to continue to compound
At today’s high rates, credit card interest charges can quickly turn a manageable balance an unmanageable financial burden. If you carry the loan from month to month, the interest charges will increase, increasing the total debt. For example, a $5,000 balance with a 23% APR that isn’t paid off quickly can balloon in a matter of months. And the longer you allow interest to accumulate, the harder it is to escape the debt cycle.
To avoid compounding interest, you may want to explore options to minimize or eliminate interest charges entirely. One option is transfer your balance to a card with a 0% introductory APR offer, which allows you to pay down the principal balance without accruing more interest for the set period. Another strategy is to consolidate your credit card debt with lower interest loans. Failure to address compounding interest, though, will only make the financial burden increase.
Don’t take advantage of the help available to you
Many people mistakenly believe that they need help with credit card debt will damage your credit or make your financial situation worse. In fact, there is debt relief option which can provide significant assistance without a major impact on your finances. A company that pays off debt offers a variety of services, including debt consolidation, debt management plans and even negotiations with creditors to reduce outstanding balances or interest rates. These services can make it easier to manage your debt.
Ignoring these resources out of fear or misinformation can be a costly mistake. For example, register in a debt management program can help you create a structured repayment plan and even lower your interest rate or card fees, all while protecting you your credit score. Likewise, negotiate with your credit card issuer can result in paying less of your debt (whether through a lump-sum settlement or other concession), which can be helpful if you’re struggling due to a temporary financial setback. So, instead of avoiding professional help, it’s important to explore all the options available to you.
Bottom line
Credit card debt is a growing problem in today’s economic climate, but by avoiding these common mistakes, you can start taking control of your finances this fall. Rather than waiting for rates to drop or letting interest snowball, taking proactive steps now can help reduce your debt burden before it grows. And remember, there are resources out there to help you, no matter how dire your situation.
