Don’t let your credit card debt overwhelm you: now’s the time to reduce them

The financial strain has become worse for those who had no savings before the pandemic. According to experts, inflation, higher interest rates and the end of pandemic-related aid — such as temporarily suspending student loan payments — have driven credit card debt to record levels.

According to New York Federal Reserve data, Americans owed $1.1 trillion on their credit cards in the fourth quarter of 2023.

Silvio Tavares, President and Director General VantageScore, One of the two most important credit rating systems in the country has warned that “considerable signs of stress are beginning to appear,” even though consumers report, in general terms, good financial health.

If you have a high balance on your credit card or cards, consider trying some of these tips:

Ask for a lower interest rate on your credit card

The first thing you should do is ask the company that issued your credit card to lower your interest rate.

That said, you’ll likely have to pay a balance transfer fee and pay off your balance before a certain promotion window ends, otherwise additional interest will accrue.

Additionally, the banking industry sentiment report shows that banks are becoming more conservative in lending, which means it may be more difficult to refinance loans.

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Pay off debts with the highest interest rates first

This strategy is known as the ‘avalanche approach’, which involves paying off the debt that accrues interest the fastest first. According to some financial planners, this is the smartest financial way to manage your debt.

Another strategy, known as the ‘snowball approach’, focuses more on the psychological aspect of paying off smaller debts first. This can create momentum and optimism before facing high debt. Some financial advisors believe this approach is more motivating.

You can get free counseling from the National Foundation for Credit Counseling at nfcc.org.

Consolidate your debts if possible

Advisors encourage consumers to consolidate their debts at fixed rates whenever available. The Federal Trade Commission’s Consumer Guide to Paying Off Your Debt can help you make a plan.

When it comes to student loan payments, make sure all those loans are consolidated and you’re taking advantage of any opportunities to lower your monthly costs.

The Public Service Loan Forgiveness (PSLF) program is one of several forgiveness options still available to many student loan borrowers.

Keep inflation in mind when creating your budget

While inflation is down from its peak, prices for many goods and services remain high. Bread, which cost $1.54 in December 2020, reached $2.02 at the end of last year, while the average rent for a property with up to two bedrooms rose to $1,713 from $1,424 at the end of 2020, according to the Bureau of Labor Statistics. Last year, according to realtor.com

America savesA nonprofit campaign by the Consumer Federation of America also offers advice.

Since the pandemic, some monthly service providers have been more open to negotiating their bills — whether it’s cable TV, phone, internet or car insurance. Contacting these companies can lead to significant savings, said Kia McAllister-Young, director of America saves, Joe recommends calling and asking about the lowest rates, discounts and coupons available. If a supplier competes with other companies, you are more likely to get a discount.

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