Credit card rates are rising. If you have a lot of debts, now is the right time to figure out how you can pay it off. You cannot just keep on paying the minimum of your credit card debts. Doing so will lead to years of debt payments. It will literally take you forever to pay off your debt. Thanks to the finance charge, you will be paying much more than what you really purchased. If the interest rate is high, you can expect that the finance charge will be high as well. This is the amount that is added to the balance carried over to the next billing cycle. This is the main reason why it will take a very long time to completely pay off your balance.
With the news of a higher credit card rate, this finance charge will be even greater. How can you expect to achieve debt freedom within the next few years? If the average credit card debt is $6,028 per household, it can be quite hard to pay it all off in one go. With the current credit card interest of 16.91%, the interest amount that will be added to that debt is $1,019.33. And this is on a yearly basis. If the news is true that the credit card rates will rise, this amount will be higher.
This is the reason why you need to find a way to pay off your debts as soon as possible. If the interest rises, your debt might grow faster than you can pay off. But then again, what is the best strategy for you to pay off your credit card debts?
When it’s okay to consolidate while credit card rates are rising
Debt consolidation is one of the best options that you can use. It combines all your debts into a single credit account. This will leave you with one monthly payment and better terms – including having a lower interest rate. If the credit card rates are going up, the last one will really help you save money on your debts. Ideally, this should make the payments more affordable and easier to complete.
Of course, this option should be considered carefully. It is effective but you still have to make sure it fits your specific financial situation. That is how you can ensure that you can maximize the benefits that it will bring.
Here are the three signs that you should consolidate debts when the credit card rates are rising.
If you can get better terms and rates
Creditors will usually inform you if they have plans of raising their rates. You need to check your current credit card debts and compare the interest rates. If things will end up being too expensive, you should then look into consolidating your high-interest credit card debts. Since credit card rates are rising, you can opt to consolidate either through a loan. The lowest interest rate would come from secured loans like home equity loans. But if you do not have collateral, you can just opt for an unsecured loan like a personal loan or a debt consolidation loan. These have a lower interest rate compared to credit cards.
You can opt for balance transfer cards because it will start off with a 0% interest rate. However, you have to make sure you can pay off all your debt by the end of the promo period. Once the promo ends, the card will revert to its original high-interest rates. So you have to be careful with this option.
If it will make you stick to the repayment plan
Another reason why it is a good idea to consolidate debt when the credit card rates are rising is if it will help you stick to your repayment plan. Sometimes, we need something that will help us stay motivated in completing our debt payments. For some people, it is the thought of saving money that motivates them to stick to their payments. Others need to see their progress to stay motivated. All of these are possible if you use debt consolidation to pay off your debts. This strategy gives you a new repayment plan – so you can take advantage of that to set up something you can afford. As long as you can commit to your payments, you will feel the progress. Not only that, if you get a lower interest rate, you will surely save money on your overall debt payments.
If it can organize your payments
Debt consolidation forces you to take a look at your debts to study it. This will allow you to get an overview of your finances so you can take back control over it. Oftentimes, our debts feel overwhelming because we do not have a real idea of how much we really owe. But once you get a picture of the situation, you will feel more in control over it. This will help you deal with the stress. And since you now have a more affordable and organized repayment plan, it will make you feel at ease with the fact that you are doing something about your debts.
You should also remember that the rising credit card rates can lead to other issues that can compromise your financial situation. So make sure you keep your finances organized so you can easily see where you stand. This will allow you to make quick, smart, and informed decisions about your debts and finances.
How to keep credit card rates from damaging your finances
The truth is, there are things that you can do to ensure that your finances will never have to suffer because of the rising credit card rates. But you have to act on it. Failing to work on your credit card debts can compromise your future. It had actually gotten so bad for some people that they are already resigned to the fact that they cannot pay their credit card bills completely.
Do not let yourself reach this point. Here are some tips that you can use to ensure that even the rising credit card rates will not bother you.
Pay as high as you can
The truth is, the best way to stay unaffected by credit card interest rates is to pay off your balance in full. Every time you use your card, you need to ensure that you will only spend what you can afford to pay in full when the billing statement comes. Make sure you include your credit card spending in your budget. If you cannot pay for it when the due date comes, then do not use your card for purchases. This habit will also effectively keep you from accumulating a lot of debts.
Take care of your credit score
It also helps to have a good credit score. This is an indication that you are a responsible credit user. You pay your dues in time and you do not borrow more than what you can afford to pay back. This makes you a low risk borrower. It will tell lenders and creditors that they can trust you with a low-interest rate. So if you open a new account, there is a higher chance that you will get a lower rate on it.
Learn to negotiate
Even if you have a high credit card interest rate, you can easily request for that to be lowered. This is your right as a credit card user. The credit card company should be willing to negotiate with you on this. If you have a good credit score, there is a high chance that you can reach an agreement in your favor. Some people do not realize that they can negotiate the high interest of their credit cards. You just have to call and ask if they can lower it. If you pay your dues on time, they will usually relent and bring it down.