U.S. credit card debt recently hit $1.03 trillion – the highest ever – as the number of cardholders carrying a balance continues to rise. Nearly 50 percent of cardholders have monthly debt — up from 46 percent last year and 39 percent in 2023, according to a Bankrate survey.
Credit card debt is not a new problem among American consumers. However, cardholders are in for an expensive ride as interest rates continue to rise amid the Fed’s ongoing battle against inflation. If you’re struggling with credit card debt, consolidating your accounts or applying for loan forgiveness are some options to protect yourself from future rate increases.
Interest rates on credit cards are expected to remain high in an environment of rising interest rates
Since inflation hit a 40-year high last June, the Fed has raised rates in an attempt to tame it. While these efforts are paying off, the rate hikes are not over as inflation has eased. Economists expect the Fed to make at least one more rate hike before the end of the year, bringing the fed funds rate to between 5.5 and 5.75 percent. This will in turn make borrowing and overall debt more expensive.
Michele Raneri, vice president of US Research and Consulting at TransUnion, says that when it comes to credit card interest rates, there’s no reason to think they won’t remain at least as high as they are now for the rest of the year. of credit quality.
“It wouldn’t be surprising if we saw more and more delinquencies,” Raneri said. “However, in light of the continued low unemployment we have seen, there is hope that this increase will be moderated. Furthermore, it is a positive sign that utilization has remained relatively low and consumers are not making the most of their available credit,” she adds.
What this means for consumers
The average annual interest rate for new credit cards is currently below 21 percent – the highest since mid-2007, according to figures from the US Department of State. CreditCards.com. With rates set to rise again this year, cardholders with a balance may also face higher monthly bills. This, combined with higher prices for everyday goods and services, means it could be harder for consumers to pay off their balances as budgets will remain under pressure.
What to do if you’re struggling with credit card debt
If you’re one of the millions of Americans struggling with credit card debt and looking for ways to pay it off or make payments more manageable, these are some options you can explore.
- Debt consolidation: Debt consolidation involves taking out a personal loan to pay off your credit card bills, resulting in a single payment per month with one fixed interest rate. According to research by TransUnionCredit card consolidators saw their balances drop by an average of 57 percent after consolidation.
- Debt relief: If you have more than $10,000 in credit card debt and imperfect credit, hiring a third party to help you get out of debt may be a good option. Debt counselors settle your debts for less than what you owe in exchange for compensation. This fee is typically between 15 and 25 percent of the amount settled and most consumers are debt-free within four years.
- Debt Management Plans: Debt management plans, offered by credit counseling agencies, can help you get out of debt within three to five years. These plans are best for those who are deeply in debt and cannot qualify for debt consolidation loans. Debt management plans are also a more cost-effective alternative to debt relief companies, as some credit counseling agencies are non-profit organizations.
it comes down to
As interest rates continue to rise, credit card debt will become more expensive. That said, you have options to protect yourself and your finances from further increases. Make sure you research these options carefully so you can choose the one that makes the most sense for your situation.
