Revolving Credit Balances Rise 11.4% In May, Says Fed: How To Pay Off Your Credit Cards
The coronavirus pandemic has kept many Americans in quarantine at home throughout 2020, free from expensive activities like dining out and travel. In addition to spending less, some consumers were able to pocket the extra money from federal stimulus checks, loan abstentions, and expanded unemployment benefits. As a result, they paid off billions of dollars in credit debt last year.
But it appears that trend is reversing, now that the economy is returning to its pre-pandemic state. Consumer credit rose 10% between April and May 2021, with revolving balances increasing 11.4%, according to the Federal Reserve. This suggests that when Americans return to restaurants, airports, and hotels, they put these discretionary spending on their credit cards.
9 OF THE BEST DEBT CONSOLIDATION COMPANIES
Revolving credit card debt is typically rated at interest, which is bad news for consumers who make the minimum payment, as credit card interest rates are also rising. Between Q1 and Q2 2021, the average credit card rate on interest-bearing accounts fell from 15.91% to 16.3%, according to the Fed.
It can be tempting to get back to pre-pandemic spending habits, but it’s important to regulate your spending so you don’t end up with high interest credit card debt. And if you’re like many other Americans who have built up a credit card balance over the past few months, now is the time to pay off the debt before it gets out of hand.
There are many ways to pay off credit card debt, from personal loans to balance transfers. You can compare interest rates on a variety of financial products at Credible to make sure you save as much money as possible while paying off your debt.
HOW CREDIT ADVISORY PROGRAMS CAN HELP YOU REPAY YOUR LOANS
3 ways to consolidate credit card debt
Credit card consolidation can help you save money on interest and pay off debt faster. You’ll also simplify the debt repayment process by combining all of your credit card balances into one form of financing with just one monthly payment. There are three main ways to do this:
- Personal loan
- Balance transfer
- Secured loan
Compare your options in the sections below, and visit Credible when you’re ready to start consolidating your credit card debt.
DEBT SNOWBALL METHOD VS. DEBT AVALANCHE: WHAT IS THE DIFFERENCE?
You can use a personal loan for just about anything from financing renovations to paying medical bills. But by far the most common use of a personal loan is to pay off credit card debt. Here are some things you should know about personal loans.
- They are not guaranteed, which means they do not require a guarantee. Lenders will use your credit history and debt-to-income ratio to determine your eligibility and set your interest rates.
- They are issued in a lump sum, usually directly to your bank account within a few days of approval.
- They are repaid in regular monthly installments over a set period of months or years, so you always know how much you owe and how long you have until your debt is paid off.
More importantly, personal loan rates are generally lower than credit card interest rates. The average rate for a two-year personal loan was 9.58% in May 2021, compared to 16.3% for credit cards rated at interest. By getting a lower rate on a personal loan than what you are currently paying on your credit card debt, you can save hundreds of dollars in interest and get you on your way to debt relief.
If you decide to use a personal loan for debt consolidation, you should compare the interest rates of several lenders to make sure you are getting the lowest rate for your financial situation. Visit Credible to see personal loan offers that are right for you, all without affecting your credit score.
HOW TO GET A DEBT CONSOLIDATION LOAN WITH BAD CREDIT
2. Balance transfer
Another common way to consolidate credit cards is to use a balance transfer. This involves transferring your credit card balances to a new credit card with a lower interest rate.
Balance transfers can be particularly beneficial if you can qualify for a balance transfer card with a 0% APR introductory period. Some credit card companies will offer 0% APR periods for the first few months after opening an account, typically up to 18 months. This can give you plenty of time to pay off your credit card debt without ever accumulating interest.
This method of debt consolidation is not for everyone, however. To get the best deals, you’ll need a good or better credit score, defined as a score of 670 or higher using the FICO model. Additionally, you may need to pay a balance transfer fee, which is typically 3-5% of the amount transferred. And be aware of credit card balance transfer limits because you may have more debt than you can transfer.
Find the right credit card issuer for your needs on Credible.
CASH-OUT REFINANCE VS. REAL ESTATE LOANS: WHAT CHOICES
3. Secured loan
If your credit is average or bad and you can’t qualify for a personal loan or balance transfer card, consider paying off your credit card debt with a secured loan instead.
Secured loans require collateral so it is less risk for the lender. The biggest downside, however, is that the lender can seize the asset you used as collateral if you don’t repay the loan. That being said, there are a few types of secured loans to consider when paying off credit card debt:
- 401 (k) loan: Some retirement plans allow you to borrow a low interest loan from the money you have invested in your retirement account. Since you are borrowing from yourself and not from a lender, you don’t have to go through a credit check and pay yourself the interest. 401 (k) loans are limited to $ 50,000 or half of the amount vested in your retirement account, whichever is less.
- Secure personal loan: Some lenders offer loans secured by the value of your vehicle. This is a good option if you need a personal loan for bad credit but don’t want to pay extremely high interest rates, but they can be risky as you will lose access to transportation if you don’t. not repay the loan.
- Cash-out mortgage refinancing: With high equity and low mortgage rates, now is the time for homeowners to refinance. When you choose the mortgage refinance with withdrawal option, you are taking on a larger loan than your current home loan and using the extra money to pay off your credit card balances.
It is always essential to compare interest rates when purchasing a financial product, and this is especially true when it comes to refinancing a mortgage. Mortgage rates are historically low, so there’s never been a better time to refinance. Find out what types of rates you qualify for on Credible.
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