For people carrying $10,000 in credit card debt – or any amount – now is the time to pay it down before the Federal Reserve pushes interest rates higher.
“It’s a very difficult time to be a lender,” said Matt Schulz, chief credit analyst for LendingTree, on Yahoo Finance Live (video above).
Credit card balances rose by $38 billion to $925 billion in the third quarter of 2022, according to the latest data from the Federal Reserve of New Yorkmarking a 15% year-over-year increase and the largest increase in more than 20 years.
At the same time, credit card rates have been rising rapidly as the Fed raises its interest rate to curb inflation. The average rate on a credit card rose to 20.4% in November, the NY Fed availableup about 2 percent from the previous quarter and the highest level since the Fed first began monitoring in 1994.
The best way for borrowers to reduce that debt is to “really try to control that interest rate,” Schulz said. Here are three things you can do.
Get a 0% balance transfer card.
Instead of paying 20% in interest, pay 0% before the Fed raises rates again.
“One of the best tools they have in their arsenal against rising interest rates is the 0% balance transaction credit card,” Schulz said. “It may seem like people don’t use getting a new credit card as a way to avoid bad credit, but these cards are widely available, especially if you have good credit.”
With a 0% balance transfer card, borrowers can avoid paying interest on balance transfers for up to 21 months, depending on the card’s promotional terms. But lenders need to act quickly because some borrowers could see shorter opening times on these cards as the Fed continues to raise rates, Schulz said.
“While rates are going up like crazy and it’s a tough time for anyone with bad credit, a tool like a 0% balance transfer card is a great, great option,” the said Schulz.
Get a low interest personal loan
A personal loan can also be used to pay off your credit card debt if you qualify for a loan with a lower interest rate than your current credit card.
In addition to carrying lower interest rates than credit cards, personal loans have set payment times and balances that you cannot add to, so you can avoid balancing your balance. Debt. Another big plus: When you pay off your credit card debt in full with a loan, your credit score will increase almost immediately.
However, it is not a free lunch and you have to stay in control to pay down the personal loan balance. Missing payments can hurt your credit score. To get the best loan terms, shop around.
Ask for a lower APR
Another option that many borrowers don’t think about is as simple as asking their credit card company for a lower interest rate. report.
“In some cases, it’s a matter of just calling and asking,” Schulz said.
But the better way is to come up with a “little gun,” Schulz said, like other credit card offers you’ve received in your email or seen online. Give that to your credit card company when you get it on the phone, letting them know you’re ready to take the offer for a lower interest rate card unless it’s matched or better.
“Chances are if you’re a good customer, they’ll listen to you and work with you,” Schulz said.
Gabriella is a personal finance writer at Yahoo Finance. Follow him on Twitter @__gabriellacruz.