Finance

Family Finances: Paying off credit card debt is a good New Year’s resolution | the money

Carrying a balance has always been expensive, but now it is especially expensive.

The average credit card interest rate in mid-December was 19.42%, the highest rate since 1992. As the Federal Reserve Board continues to raise short-term interest rates to quell inflation, average rates could rise even higher, according to Ted Rossman, credit card analyst for Bankrate.com, which tracks interest rates for consumer loans.

It is not unusual for consumers who are struggling to pay their bills to pay the minimum payment on their credit cards. But over time, making the minimum payment will add thousands of dollars to the amount you owe.

The average amount owed by cardholders who carry a balance is $6,569, according to analysis by LendingTree, an online loan marketplace. If you carry a balance of that amount, your interest rate is 18%, and you only pay the minimum of $165 each month, it will take you five years to pay off the debt, and your total payments will reach $10,000. (You can calculate your own numbers using Experian’s credit card payout calculator.)







kiplinger-family-20230110

Over time, making the minimum payment will add thousands of dollars to the amount you owe.




If you have good to excellent credit, one option is to apply for a balance transfer card with a 0% introductory rate. Wells Fargo, Bank of America and Citibank offer balance transfer cards with a 0% rate for up to 21 months, Rossman says. Most charge a transfer fee of 3% to 5% of the balance.

Once the introductory period is over, the interest rate will increase to the card’s regular rate, which could be even higher than the rate you were paying before the balance transfer. Ideally, you should try to pay off most or all of the balance before this happens. Divide the amount you owe by the number of months in the balance transfer period to get an idea of ​​how much you should try to pay each month. Resist the temptation to add to your credit card debt, even if you get offers for 0% interest on new purchases, Rossman says.

If you’re a homeowner, another option is to use a home equity line of credit to pay off your credit cards. The average rate for a home equity line of credit is 7.3%, according to Bankrate.com, and you typically have up to 20 years to pay off the loan.

But before you borrow against your home, make sure you can afford the payments if the economy goes south, says credit expert Gerry Detweiler. “If you fall behind on your payments, you’re putting your house at risk.”

___

Between inflation driving up the cost of living and rising interest rates in response, 2022 was an expensive year. The recession story continues, so 2023 could come with its own monetary challenges. And consumers are worried: NerdWallet’s annual household debt study found that nearly 7 in 10 Americans (69%) have financial concerns about…

With the new year upon us and the holiday fanfare behind us, this is a great time to set money goals, especially if you’ve recently spent a lot on gifts and travel and want to get your finances in shape. Right now, you might be highly motivated to solve all your money issues in…

Forecast of mortgage rates in January. Mortgage rates could rise modestly in January, reaching their peak in 2023 before easing for the rest of the year. If mortgage rates rise in January, they will do so in response to two things: stubbornly high inflation. Uncertainty over what the Federal Reserve will do at its next monetary policy meeting, which…

Since the start of the COVID-19 pandemic, small business owners have faced ever-changing regulations, a lack of cash flow, and general economic uncertainty. And 2022 brought its own challenges: inflation, rising interest rates and staff shortages, among others. Entrepreneurs, however, remain resilient and optimistic about the year ahead. In fact, 66% of small business owners expect their revenue to increase…

COPYRIGHT 2023 BY KOAM NEWS NOW. ALL RIGHTS RESERVED. THIS MATERIAL MAY NOT BE PUBLISHED, BROADCAST, REPRODUCED OR REDISTRIBUTED.

Sandra Block is the senior editor of Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.



Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button