The good news is that inflation is abating. The bad news is that prices are still 8.5% higher than a year ago. And the scary news is that many consumers are dealing with rising prices by adding to their credit card debt.
The proof is in the statistics. Outstanding credit card balances grew by $46 billion in the second quarter of 2022 — a 5.5% increase from the first quarter this year. And credit card balances increased by $86 billion in 2021 — a 20-year record.
Clearly, many consumer are financing even the most basic purchases on credit cards. That’s happening as interest rates are rising. And since card rates are tied to The Fed’s overall rate increases, those finance charges will soon become more burdensome.
Currently, the average rate charged on credit card balances is 17.13% — up from just over 16% a few months ago. But many highly indebted consumers pay 24% interest or higher. Once card issuers realize you’re hooked, they can easily raise rates.
Of course, card issuers say they’re worried about possible defaults, bankruptcies and write-offs if the economy hits a steep recession. That’s why they are setting aside reserves and raising rates.
Since Americans now carry over $840 billion in credit card balances (close to the pre-pandemic record of $930 billion), that interest is making the card issuers rich. And it’s making borrowers poor.
If you’re worried about the impact of 8.5% inflation on your budget, you should absolutely be aware of the impact of double-digit credit card interest!
Here’s what you can — and should — be doing now to salvage your finances:
1. Pay down your balances. If you just pay the minimum required amount each month it could take you 30 years to get out of debt, Since jobs are still plentiful, take a part-time service job to earn extra money. Seniors who cannot work might consider adding a paying roommate or after school childcare for a working mom.
Put the “extra” money toward your balances using this plan:
Take this month’s minimum payment and DOUBLE IT! Write that number down, and pay that same amount every month. Don’t charge another penny on the card.
Following this plan will wipe out your balance in less than three years!
2. Use a balance transfer card to find a lower rate and a short zero-interest grace period. You can find the best deals on a balance transfer card at Creditcards.com.
But beware! Use this grace period to pay down your debt quickly. When it expires, rates will quickly jump much, much higher.
3. Review your monthly charges. This is the time to review all those automatic subscription payments for online services. You can live without so many of them, saving a small fortune.
4. Get reliable counseling. Avoid expensive services that promise to negotiate with your creditors. They typically require you to stop paying on the cards, setting aside money in an account that allows them to make an offer. But in the meantime your credit is ruined.
Instead, contact the nonprofit National Foundation for Credit Counseling (NFCC.org) at 800-388-2227. You’ll be connected to the nearest local member agency. You can even do counseling over the phone.
There is a meaningful reward for paying down your credit card balances. Not only does it save you a fortune in interest; if done correctly, this paydown will allow you to get a new, lower-rate card to use when really needed. Your credit score will quickly move higher as your outstanding balances diminish.
Attack your debt now with an organized plan. Everyone — especially the Federal Reserve — hopes that a painful recession can be avoided while inflation is tamed. But being buried in debt will inevitably create your own personal recession. And that’s The Savage Truth.