How Does Inflation Impact My Credit Card Debt?

Quick Answer

The higher prices and rising variable APRs that come with inflation are contributing to larger credit card balances. Fight the effects of inflation by lowering your interest rate and paying down your credit credit card debt.

A man wearing a gray suit frowns while looking at his laptop and holding his credit card.

Inflation is when the prices for goods and services gradually rise, which in turn means your money won't go as far to cover your expenses. Like most Americans in 2022, you've likely felt the sting of inflation when paying for gas, groceries and other goods and services.

And if you use credit cards to make purchases, your credit card debt may be higher as a result, in part due to both rising prices and higher variable credit card interest rates. No matter the reason, inflation can cause your credit card balance to increase if you don't pay your bill in full every month. Let's take a closer look at how inflation affects your credit card debt.

How Inflation Impacts Credit Card Debt

If your credit card debt is higher than usual, it may be because of inflation. Total consumer credit card debt rose 13% from the second quarter (Q2) of 2021 to Q2 2022, according to a Federal Reserve Bank of New York report. The 13% increase represents the most significant spike in over 20 years. "Americans are borrowing more, but a big part of the increased borrowing is attributable to higher prices," wrote researchers for the New York Fed.

In an effort to bring down prices, the Federal Reserve has raised its target interest rate four times in 2022 for a total increase of 2.25%, with more rate hikes potentially on the way. Credit card issuers typically pass on these higher interest rates to their cardholders by raising the annual percentage rates (APRs) on their credit cards. APR hikes translate to additional interest costs on any balances you carry month to month. As such, the 2.25% rise in interest rates this year means an additional $22.50 in interest for every $1,000 in credit card debt.

Of course, you can avoid credit card interest charges by paying your balance in full every month.

How to Lower Your Credit Card Interest Rate

One of the best ways to combat rising interest rates is to ask your credit card issuer for a lower rate. Although credit card companies don't have to lower your APR, many will consider it, especially if you've been a loyal customer for a long time with a history of consistent, on-time payments.

Follow these guidelines to improve your chances of lowering your credit card interest rate with your card issuer:

  1. Determine your current APR. Look at your most recent account statement to review the interest rates you're paying on your credit card for purchases, balance transfers and cash advances.
  2. Improve your credit score. Your creditor's decision to lower your APR may be based partly on your credit score, so it might be wise to improve your credit before contacting your card issuer. You can get your credit score for free with Experian.
  3. Compare credit card offers. Knowing what APRs are available could give you negotiating leverage when you contact your credit card issuer. For example, if you notice a credit card offer where the high-end of the APR range is lower than your current APR, that could strengthen your case to lower your rate. You can compare personalized credit card offers through Experian CreditMatch™ without hurting your credit score.
  4. Contact your credit card company. Call the customer service number listed on your credit card and ask about lowering your credit card's interest rate. Be prepared in case your card issuer rejects your initial request. You can mention your history as a customer and your payment history if you've made your payments on time.

How to Pay Off Credit Card Debt Fast

If inflation and higher interest rates are adding to your credit card debt, and you're carrying a monthly balance, consider these methods of paying off credit card debt quickly.

Balance Transfer Credit Card

As the name implies, a balance transfer credit card allows you to transfer balances from one or multiple accounts to a different card. Generally, these cards offer a 0% introductory APR on transferred balances for a period that commonly ranges from six to 21 months. This can be a great way to get considerable extra time to pay down your debt without interest.

Remember, however, that the interest rate returns to its regular rate once the promotional period ends. Also, note that you may incur a balance transfer fee that is usually 3% or 5% of the total transfer amount.

Personal Loan

Although personal loans don't usually have interest-free promotions like balance transfer credit cards, they often offer lower interest rates than credit cards. You can use a debt consolidation loan, a type of personal loan, to combine multiple high-interest credit cards with one fixed-rate loan with a single monthly payment.

Bear in mind that lenders often charge an origination fee from 1% to 8% of the loan amount on their debt consolidation loans, which could offset your savings.

Debt Avalanche Method

The avalanche repayment strategy can help you save money by focusing on high-interest debt payoff first while you make only minimum payments on your other accounts. Once you pay off the account with the highest interest rate, direct the money you would've paid for that account toward your account with the next-highest interest rate. Rinse and repeat until you pay off all of your credit cards.

Debt Snowball Method

The debt snowball strategy aims to accumulate quick victories to fuel your motivation and inspire you to keep paying down your debt. Like the debt avalanche method, you make minimum payments on all of your accounts except one. But in this case, you'll direct as much as you can toward the account with the lowest balance. When the balance on that account reaches zero, take the money you used to allocate for that account and add it to your payment on the debt with the next-highest balance, and repeat this process until you have no more credit card debt.

Earn Extra Money

The more you pay toward the principal balance on your credit cards, the faster you can pay off your credit card debt. Look for ways to earn extra cash you can apply towards your credit card debt.

For example, consider asking your employer for a raise or volunteering to work overtime. If you have a little free time, consider taking up a side hustle or a part-time job. Additionally, selling unused items from your house, such as power tools, gaming consoles and fitness equipment, can help you drum up cash quickly.

Keep Track of Your Credit

Credit card debt is rising due in part to higher prices and increased variable APRs on credit cards. Practicing responsible credit card use is essential to help control inflation's effects on your credit card debt as higher debt balances increase your credit utilization ratio. That's the amount of revolving credit you're using compared with your credit limits. Your credit utilization is an important factor in your FICO® Score .

One way to stay on top of your credit is by utilizing Experian's free credit monitoring. You'll receive notifications of any changes to your credit report, including changes to your credit utilization rate.

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