- The Federal Reserve has kept interest rates low for years to help with economic recovery.
- However, rising interest rates will make debt more expensive.
- If you can't afford to repay your debt, consider debt relief options.
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You may not think much about The Federal Reserve System, or “the Fed”, but when it makes a new policy, it could have a direct effect on how you save, spend, and borrow money.
Recently, the Fed announced a new policy to keep interest rates low, even when the job market bounces back. Its stated goal (a change from previous policy) is to achieve a 2% inflation rate over time and will focus less on the traditional concern that a strong job market causes inflation. This will help the central bank to keep interest rates low on many types of consumer debt, including credit cards.
So what could all this mean for your credit card debt? Keep reading to find out.
Pros of the Fed’s new policy
Thanks to the Fed’s new policy, you can expect the annual percentage rates (APRs) on your credit cards to decrease or remain low for the foreseeable future. This is good news for consumers, as the reduced rates could lead to lower monthly payments and hundreds or even thousands of dollars in interest savings on your credit card debt.
If you have a home equity line of credit, personal loan, or another type of debt with an APR that correlates to changes in the federal interest rate, you may see lower rates on that debt as well.
Cons of the Fed’s new policy
Just because credit card interest rates will be lower than they were in the past doesn’t mean they’re necessarily affordable. Believe it or not, the average credit card APR is 16.03%. Compare that to the average rates for mortgages, car loans, and other personal loans, which have APRs of 3.28%, 5.61%, and 9.63%, respectively.
The fact that credit card interest rates are still relatively high makes means you should still prioritize paying down card debt if you are trying to reach goals like raising your credit score, increasing savings, and lowering debt load.
How to pay off credit card debt
If you’re struggling with credit card debt, it will probably take more than a change in monetary policy to help you tackle it. Even after the Fed’s announcement, credit cards are still an expensive way to borrow money, so now could be a good time to pay them off if you want to pay for college, buy a house, or have a more comfortable retirement. Here are some tips that can help you pay off your credit cards and save as much of your hard earned money as possible.
Consider 0% APR balance transfer cards
With a 0% APR balance transfer card, you may be able to move your credit card debt onto a credit card that offers a 0% APR for a promotional period of up to 21 months. You could save a great deal of money in interest charges, but only if you’re able to pay off all or most of your credit card debt before the promotional period comes to an end.
Choose a debt payoff method
There are two methods that can help you pay off your credit card debt: the debt snowball and the debt avalanche. Here’s an overview of how each one works.
Debt snowball: The debt snowball involves tackling credit cards with the smallest balances first and gradually moving on to those with larger balances. If you’d like to stay motivated, this method is a good way to go.
Debt avalanche: With the debt avalanche, you focus on paying off credit cards with the highest interest rates initially. This method is a good option if you’d like to save as much as possible on interest.
The less money you spend on everyday expenses, the more you’ll have to pay off credit card debt. To reduce your expenses, you can:
Cook at home: It may be tempting to order takeout or go through the drive thru every time you don’t feel like cooking. Doing so, however, can raise your food budget Prepare fresh meals at home whenever you can. Your wallet (and waistline) will thank you.
Cancel memberships and subscriptions: If you have a monthly membership or subscription to a gym, magazine, or another product or service, get rid of it. Chances are you aren’t doing much indoor exercise at this time anyway.
Opt for budget billing: A tool called budget billing can give you the chance to pay the same amount of money on a particular utility each month. It may make sense if you’d like to avoid the ups and downs in your utility bills that might keep you from putting more money toward your credit card debt.
Re-evaluate insurance policies: Shop around for the best deals on car, homeowners, life, or health insurance. A bit of research and comparison pricing can slash your insurance costs.
Overwhelmed with credit card debt? We can help.
If you’re struggling with your credit card debt and want to improve your finances, it might be time for some professional help. If you’re struggling with $10,000 or more in credit card debt and can’t afford to deal with it anymore, Freedom Debt Relief is here to help you understand your options, including our debt relief program. Our Certified Debt Consultants can help you find a solution that could put you on the path to a better financial future.
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