As interest rates continue to rise, the burden is growing for credit card holders carrying high balances from month to month. With consumer prices more than 8% higher than they were a year ago, many are charging more and also cutting back on monthly payments. This is creating an endless loop of high-interest debt. The most recent federal reserve monthly consumer credit report (G.19) released on January 9, 2023, reported that in November 2022, revolving credit increased at an annual rate of 16.9%. Focusing on paying down high-rate debt balances can be overwhelming, but we are here to help. Here are 2 important tips to pay off credit card debt.
1 Find a good 0% balance transfer credit card
Our number one tip for borrowers carrying high-rate credit card debt is to apply for and transfer balances to a 0% balance transfer credit card. Doing this now could provide you with significant savings on interest and buy you some time to pay down your balance. A great example of the type of balance transfer card we are referring to is Choice One Community Credit Union’s 0% APR* VISA Balance Transfer Credit Card. The Choice One VISA classic and platinum credit cards now feature 0% APR* on balance transfers for 6 months with no balance transfer and no annual card fees.
Just to give you an idea of what you can save during this 6-month introductory 0% rate period, see the example below.
Credit Card Balance Interest Rate Monthly Payment
$10,000 20% $267
The average credit card interest rate in the country is currently slightly above 20%, so we are using 20% for our illustration. Making a payment of $267 per month, in six months you would be paying nearly $1,000 in interest. That’s accurate only if you don’t charge any additional on that card during that time period.
If you transferred this balance to Choice One’s 0% APR* VISA Balance Transfer Credit Card, you would not only save $1,000 but more as well. All of your payments in those first 6 months would go towards chipping away at the total balance. When the 6-month period was over, the rate of the card would return to the current rate at the time. This is currently lower than the national average for qualified borrowers with a good credit rating as you will see in the disclaimer* below. This will enable you to save on interest and pay your debt off years faster if you don’t add additional debt to the balance.
A 0% APR* balance transfer credit card can help you take a huge chunk out of your balance, even if you cannot pay off your balance before the introductory period ends. Learn more about balance transfer credit cards in our blog “Your Guide to Balance Transfer Credit Cards.”
2 Focus on paying off the highest rate credit card debt first with the Debt Avalanche Method
Paying down the highest rate debt first is often referred to as the Debt Avalanche Method. This is the second of our recommended tips for paying off credit card debt as rates rise. While you still need to make the minimum payments on all of your debts, the Debt Avalanche Method has you targeting the highest-interest debt to pay off first. Here are the 5 steps to using the Debt Avalanche Method:
- Sort and list your debt from the highest interest rate to the lowest interest rate.
- Pay the minimum balance due on all debts.
- Allocate extra money, as much as you can afford, to focus on repaying the debt with the highest interest rate as fast as possible.
- As you pay off one debt, use the extra money to focus on paying off the next highest-rate debt.
- Continue with this method until all of your debt is paid in full.
By using the avalanche method of debt payment, you will pay less in interest over time.
Choice One Community Credit Union is here to offer advice and tips to improve your financial health. Follow us on social media and check our website for new blogs each month.
*0% VISA Balance Transfer Rate is valid for 6 billing cycles from date of transfer. Rate returns to current rate at that time. Choice One’s current Platinum Visa Credit Card Rate is 8.90% APR and Classic Visa Card is 13.50% APR with No Balance Transfer or Annual Fee. Balance Transfer offer is good on any new or existing Choice One Platinum or Classic Credit Card. 0% balance transfer rate is for balances transferred from another institution only. Transfers may not exceed the credit line a member is approved for.