Taking Control of Credit Card Interest Rates
Let’s start with the bummer news: credit card interest rates have hit all-time highs. Add high balances to that, and it’s no surprise that a Financial Health Network study found 42% of households reporting their debt as “unmanageable.” Thankfully, there’s good news ahead.
WHAT THE FEDERAL FUNDS RATE MEANS FOR CREDIT CARD INTEREST RATES
As of August 2024, projections indicate that the Federal Reserve Rate (which influences most variable interest rates) might drop as early as mid-September. If that happens, credit card interest rates are likely to cool off a bit in response. And while it won’t be enormous, you will likely save a bit more each month. A Fed Rate drop will have a more significant impact on your finances if you have several loans with variable interest rates.
This initial rate drop could foreshadow a trend of interest rate reductions over the next year. However, as it currently stands, rates are still high. So, what can you do to chip away at your balance while credit card interest rates are still elevated?
GET ORGANIZED TO DEAL WITH HIGH CREDIT CARD INTEREST RATES
ANALYZE YOUR OVERALL FINANCES
Having a clear, up-to-date picture of your monthly expenses is crucial. Start with your actual take-home pay each month, and then subtract your known, recurring payments. These include things like your mortgage or rent, streaming services, phone and internet bills, taxes, etc. Next, estimate costs that are variable but consistent: food and gas, electric bill, etc. When considering your credit cards, include the annual percentage rate (APR) for each card you have in addition to the current balance.
PRIORITIZE YOUR SPEND
Cover essentials like food, housing, and utilities first. There might be steps you can take to reduce the overall amount you spend – switching brands, shopping for cheaper rates, or finding the lowest price on gas, for example – but ultimately, these expenses come first. Next, you will want to cover secured debts like your mortgage, cars, etc. You should prioritize covering the minimum balance on all debts to prevent additional fees and avoid creating more debt.
Once you’ve addressed all your critical expenses, remaining funds can go towards paying down your credit card balances. The “avalanche” approach is often recommended for those with multiple credit cards. It works by focusing your efforts on the highest credit card interest rate first, then moving to the card with the next highest, and so on. Helpful tools like our card payment calculator make it easy to see the effects of extra payments.
Ideally, hold off on using your cards for any additional purchases. Because you already carry a balance, additional credit card spending will only cause you to pay more in the long run. Cash and your debit card will be much better options to avoid undoing all your work!
BUILD YOUR BUDGET
You’ve just done the hard part; now it’s time to get organized! Build a budget tracker to keep your finances in focus and to easily realign spending when unexpected expenses (like a broken-down car) arise. There are a variety of budgeting worksheets, apps, and Google Sheets forms you can use to make tracking easier.
ACTION STEPS TO HANDLE HIGH CREDIT CARD INTEREST RATES
JUST ASK FOR HELP
If, after all of that organizing and budgeting, you still feel overwhelmed, help is out there! FFCCU’s financial wellness partners at GreenPath offer a range of options to help. Access to GreenPath is free to FFCCU members, too! Their experienced counselors can get you on the right track, provide resources, and do so with confidentiality in mind. You can get started with GreenPath today.
CONSOLIDATE WITH A GREAT RATE
Managing multiple credit cards that carry a balance can be trickier to pay off. Not only do you need to remember to pay each card every month, but you may be unsure what to pay first, and of course, you’ll need to keep track of all the different payment dates. The “avalanche” method is a helpful solution, but it doesn’t address the complexity of balancing all those cards. Too many moving parts invite you to make a mistake or miss a payment, and then you’ll incur more fees and your balance will grow, instead of shrink.
One way to avoid this is by consolidating multiple credit card balances onto one credit card. A stellar option to consider is FFCCU’s Great Rate VISA. The credit card interest rate is shockingly low at 1.99% APR* for the first year on amounts transferred. Even better, you’ll pay NO balance transfer fee.
Simplify your finances by moving the balance from multiple cards to a single Great Rate card. You’ll streamline your payments, and your total owed won’t continue to skyrocket while you work on paying down the balance. Even after the introductory period, your Great Rate VISA card will still offer a competitive APR compared to many other options.
SHRUG OFF THE BURDEN OF CREDIT CARD INTEREST RATES
Now that you know the steps to take control, it’s time to push back against high-interest debt! If you need a helping hand to get started, we’re here for you. Step into your FFCCU branch of choice for a free Dare 2 Compare account review. Our experienced teammates will comb through your finances to see if we can find ways to save you money. If a Great Rate VISA is the solution for you, head over to ffcommunity.com. Apply online today or contact us through online chat (word bubble button in the bottom right corner) to begin.
*Rate is good for 12 months after first balance transfer occurs. Only balance transfers on Great Rate VISA credit card from within 60 days of card activation are eligible for 1.99% APR with $0 transfer fee. Offer applies to balances transferred from non-FFCCU cards only. After the introductory period ends, the Variable APR applies. The 1.99% APR applies to balance transfers only, not new purchases. Visa Card Terms and Conditions.
