The national credit card debt reaches record high, reports the Federal Reserve. If you're one of the many burdened by credit card debt, we have some tips to help.
Consumer credit card debt in the U.S. has reached a new high, according to the numbers released by the Federal Reserve. And while jumps in credit spending normally tied to increased consumer confidence, bigger balances can also mean growing interest costs for everday credit card users.
The Fed's reports shows a total of 1.02 trillion in revolving balances nationally, or an increase of about 13.25 percent since last year. This follows a pattern of steadily rising annual balances, doubling the 6.6 percent jump recorded in 2016.
If you find yourself a contributor to this growing debt, and are looking to distance
yourself from it, there are a number of routes you can take to reduce your balance.
Use a 0 percent APR credit card
One of the most popular ways to curb interest exposure on existing debt is to transfer your balance to a card with a zero percent APR. Balance transfer cards allow consumers to temporarily delay interest accrual, usually for a period of 12 to 18 months, sometimes longer.
They do come at a cost, though; most cards charge three to five percent fee on the transferred balance. Still, the cost is worth comparing to the amount of money saved by not paying interest.
An alternative to balance transfer cards, and another way to temporarily avoid interest while paying down debt, are cards that offer a 0 percent APR on purchases. This strategy involves putting all new purchases on a card that charges no interest. This helps insure that you won't add to your existing interest-accumulating balance while you work down your debt.
Try a debt consolidation loan
A non-credit card option to reduce interest on an existing balance is taking out a debt consolidation loan.
Home equity lines of credit (HELOC) are common options for debt consolidation as they often offer lower interest rates compared to alternatives. However, you need to have built equity in a home, so they won't be available to non-homeowners. They also present a unique risk - if you can't repay the loan amount, you risk losing your house.
Personal loans, unlike HELOCs, do not require collateral. No security for the lender usually means higher interest rates, though which makes this option best for people who have good or excellent credit. Likewise, people with poor credit may have a hard time getting approved for a personal loan.
If you have a retirement plan like an IRA or 401(k), you can often borrow against these savings for shorter term interest like debt consolidation. The disadvantages here are hefty fees and tax penalties in the event you don't pay back the loan on time. For this reason, borrowing against a retirement plan is usually considered a last-ditch effort for debt consolidation.
Other reasons you should reduce your debt
Limiting interest is usually the most obvious cause for reducing debt, but there are other benefits to shrinking your balance that you might not have considered.
Holding a large credit card balance can seriously hurt your credit. Your credit-utilization ratio, or the amount of debt you hold as a percentage of credit available, accounts for 30 percent of your FICO score. Generally speaking, the higher the ratio of debt to credit, the lower your credit score will be. So paying down your debt can play a large part in boosting your credit.
Comments
Post a Comment