As inflation has returned, the Federal Reserve has hiked interest rates four times from March 2022 through the end of July 2022. With interest rates rising, it may cost you more money if you have credit card debt.
Americans love shopping, and much of that shopping is done on credit. In the second quarter of 2022, U.S. shoppers charged $46 billion to their plastic, a 13% increase over last year at the same time and the largest in over 20 years. According to the Federal Reserve Bank of New York, total credit card debt is now at $890 billion, jumping $100 billion in one year.
The Federal Reserve’s interest rate increases should not concern you if you pay your balances off monthly. However, if you carry a card balance beyond its due date, the Fed’s series of rate hikes is not good news as it is subject to the annual percentage rate (APR) determined by your credit card and credit score.
If you carry around some credit card debt, it may be a good idea to pay them off instead of wasting money on paying not just the balance but also the interest on the balance. You can save money on interest by creating a plan to pay off your credit card debt.
One of the most important reasons to develop a budget is that the spreadsheet or online tool you are using can help you see where you are spending your money and possibly how to better use those funds. In addition, seeing where your money is going may help you identify regular expenses that are taking away from your long-term goals.
When attempting to reduce your debt, it can help to review your spending. Once you know what your expenses are, try to temporarily remove all unnecessary purchases, like your morning coffee run, eating out, streaming subscriptions, or impulse purchases. Reducing those expenses can help you meet your budget and stop adding to your balance as soon as you pay it down.
It is essential to stop adding to your principal by buying goods and services you cannot afford with a credit card. At times it can be very tempting to use a credit card to cover gaps in income and expense, but that can add up quickly when it comes time to pay it off and interest rates are rising.
To avoid late fees and other penalties, make use you are paying your credit cards on time. And don’t just pay the minimum balance required, as it will not do a lot to help avoid interest charges on the balance. When you pay more than the minimum, it should reduce the interest you have to pay each month and ultimately help you reach your goal of paying your credit card off.
Regardless of how much credit card debt you have, it can feel frustrating and daunting to address it. However, if you stick to your debt strategy and keep making your payments, it will pay off in the end.
Stop wasting your hard-earned money. Credit card debt can be quick to accumulate and difficult to pay off. Nevertheless, reducing any bad debt, like credit card debt, is crucial to financial health. Select a strategy you believe you can stick with and continue to work at paying off your debt. By staying disciplined and patient, you will finally start seeing progress.
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This article was written in collaboration with the financial professionals at Spaugh Dameron Tenny. Our team features CERTIFIED FINANCIAL PLANNER® professionals, Certified Exit Planning Advisors, insurance specialists, investment coordinators, and experienced analysts – all dedicated to addressing the unique financial needs of physicians, dentists, executives, and retirees. With decades of collective experience, we provide clear and comprehensive guidance in all areas of financial planning, wealth management, retirement planning, investment strategies, and practice transitions.
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