Unemployment may be low, but both the cost of credit card debt and the amount of outstanding credit debt are rising—and expected to keep climbing.
The takeaway for consumers is clear: If you're carrying credit card debt, you're going to be paying more for it in the months ahead, which will make it even harder to pay off completely. That's why it's a good time to devise a credit card debt payoff strategy now.
There are three key steps you can take to pay less in interest charges and whittle down your debt altogether. First, a quick check on the numbers:
- U.S. consumers paid a hefty $103.7 billion in credit card fees and interest charges in the 12 months ending March 31, according to a new analysis of Federal Reserve data by MagnifyMoney. That's up 11% from the previous year and 39% from the $74.6 billion recorded in 2013.
- Total revolving credit balances reached $1.04 trillion in May—even higher than the $1.02 trillion reached during the height of the credit crisis in May 2008, according to the Fed.
- 44% of all credit accounts are not paid off in full each month, according to the American Bankers Association.
- The average assessed interest rate on credit cards has been rising in concert with the Fed's tightening: It was 15.54% in the second quarter of 2018, up from 12.76% in the second quarter of 2013, according to the Fed.
3 Ways to Cut Your Credit Card Bills
1. Look for Low-Rate Balance Transfer Options
If you have good credit scores, you can find some relief by looking for a 0% or low-interest balance transfer offer. When you make a balance transfer, you move existing debt from one or more credit cards onto a new a card that typically offers a lower interest rate that can last anywhere between three and 24 months, typically.
You do have to pay a fee for the service, generally 3% to 5% of the transfer amount, though some banks have offered to waive fees in recent years. A balance transfer will allow you to pay down your debt faster because more of your payments will go toward the principal, and your interest won't accrue as quickly at a lower rate.
Don't think you will qualify? The good news is that more Americans have super-high credit scores (22.3%) than subprime scores (21.2%), according to Experian's State of Credit data. So check your own scores to see where you stand.
2. Call Your Issuer to Negotiate a Lower Rate
If a balance transfer isn't in the cards, you may still be able to get a lower interest rate. It never hurts to contact your credit card issuer and ask if they can lower your APR, even temporarily.
Start by making sure you have a good recent track record of paying your credit card bill on time. Recent late payments or delinquencies are unlikely to work in your favor. Next, shop around for better rates on other cards, as well as balance-transfer offers. Have this information at the ready when you call to make your request.
Call customer service and ask if there's any way you can reduce your card's APR. If the customer service rep doesn't have the authority to do that, ask for a manager or someone who does. When you make your request, explain that you've been a good customer who would like a rate closer to X. You can research other cards to see the going rate for your credit score range and also share competing offers. If they are unwilling to permanently reduce your rate, ask for a temporary reduction.
3. Devise a Smart Repayment Plan
If you have debt on multiple credit cards, you must get organized. Figure out which of your credit cards have the highest interest rates and which cards have the highest balances. If the card with your highest interest rate is also the card with the highest balance, it's a no-brainer: Focus on paying that one down first.
However, it's more likely that you have different cards with different balances, and the highest balances may be on cards with lower APRs. One strategy to pay off your debt is to focus on whichever card carries the highest interest rate—that is, the costliest debt—and focus most of your repayment efforts on that one.
For example, say you're carrying debt on three credit cards, and you have $500 a month to pay toward your debt. Each card has a minimum payment of $29 a month. On the two cards with the lower interest rates, simply pay the $29 and move on. On the card with the highest APR, direct the other $442 a month until that card is fully paid off. Then, move on to the next card until you've paid off all your cards.
Another method is known as the "debt snowball." With this technique, you list all your credit card balances from largest to smallest. Then, you focus all your efforts on paying off the card with the smallest balance, while making the minimum payments on all your other cards.
Once that card is paid off, you move onto the next smallest balance. This strategy is supposed to help give users a psychological boost—once one debt is paid off, it gives you momentum to pay off the others.
However, beware: If you employ this method, you could end up paying more in interest charges over the long run. Read more here about paying down credit card debt.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on August 15, 2018, and has been updated.