New Heightened Threat To Americans With Credit Card Debt
(ConservativeInsider.org) – Buying something on credit is an incredibly useful option to have, as someone can purchase a gift or necessary item now and pay for it later. However, with great power, such as this, comes great responsibility. If it is not promptly paid off, the interest rate quickly snowballs, making the price paid for the good or service much steeper. Now, as Americans see record-high inflation and skyrocketing rates from the Federal Reserve, credit card debt is more dangerous than ever.
The Federal Reserve Rates and Credit Cards
On Wednesday, November 2, the Fed raised the interest rate banks use with each other by another 0.75% to combat inflation. Most experts believe this is not the final rate hike, either.
— Kathy Jones (@KathyJones) November 2, 2022
As this continues, credit card users are seeing their interest rates balloon as well. This means less of every monthly payment actually goes to paying their debt. Instead, more of it will be paying the interest, leaving the cardholder to pay more than before and stay in debt longer.
The Fed’s fourth straight jumbo interest rate hike of the year will filter through the very rate-sensitive credit card industry – right in time for many holiday gifts and expenses to post on credit cards bills, experts say.https://t.co/KKgDNbZpy5
— MarketWatch (@MarketWatch) November 2, 2022
According to Newsweek, it will take someone 18 years to pay off $6,000 in debt, which is the average for Americans, if they make $80 monthly payments on their credit card with a 15% APR. Over the length of the payments, the payer would spend over $11,000 to cover the interest of their actual debt. So, as rates only continue to rise from here, borrowed money will become even harder to pay off.
What Can Borrowers Do?
According to the Federal Reserve Bank of St. Louis, the average commercial bank interest rate for credit cards was 16.27% in August of this year, while a 24-month personal loan had an average of only 10.16%. If someone is comfortable making the 2-year payment plan for the personal loan, they can use it to pay off their credit card debt, which typically has a much higher interest rate. This will save on interest as well as keep the debtor on track to pay off the debt faster than with minimum payments to the credit card company.
As Americans work through how best to pay down their credit card debt, it is essential they do not add to the owed money, as that will only compound their issues. By buckling down on a budget and even canceling credit cards if they are an unhealthy temptation, most people can get their spending to a healthy place. By being picky about what type of debt, if any, you accrue, you can hopefully find financial stability.
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