According to the Federal Reserve Bank of New York, Americans are racking up credit card debt at a record pace.
Credit card balances grew to $856 billion in the fourth quarter of 2021, up $52 billion (6.5%) sequentially. That’s the largest quarterly increase seen since the NY Fed began collecting this data 22 years ago.
Outstanding credit card debt is still about 7.7% lower than it was at the end of 2019, when it hit an all-time high of $927 billion. That’s because consumers paid off their credit card balances early in the coronavirus pandemic — although they now appear to be returning to pre-pandemic spending habits.
If you’re struggling to pay off high-interest credit card debt, read on to learn about three strategies that could help you get out of debt fast. Credible’s online marketplace also lets you compare a variety of financial products, from balance transfer cards to debt consolidation loans.
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3 ways to get out of credit card debt
If you’re among the millions of American consumers who added to their credit card balances at the end of 2021, you might be looking for ways to pay down your debt. Here are three debt payoff strategies that can help you reduce your credit card balance quickly:
- Nonprofit Credit Advice
- Credit Transfer Cards
- Debt Consolidation Loan
Read more about each method of paying off credit card debt in the following sections.
1. Nonprofit Credit Advice
Credit counseling agencies offer free or low-cost debt relief services to consumers who are struggling to manage their finances. A credit counselor can help you by:
- Analyze your income, expenses and outstanding debts to create a budget
- Negotiate with creditors to lower your interest rates and waive fees
- Signing up for a Debt Management Plan (DMP)
Under a DMP, a nonprofit credit advisor works with your creditors on your behalf to consolidate your debt into a single monthly payment. Signing up for a DMP usually comes with a monthly fee that can be waived or reduced depending on your financial situation.
You can find a certified credit counselor through trade groups like the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). A full list of accredited nonprofit credit agencies can also be found on the Department of Justice website.
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2. Balance Transfer Cards
While credit counseling may be the preferred option for debtors with fair or poor credit ratings, consumers with good credit ratings may consider alternative debt repayment methods such as credit card balance transfers.
With a balance transfer, you move your current credit card debt to a new account with better terms, e.g. B. a lower interest rate. You may be able to transfer the balance of one or more credit cards to a single card using this method, although you may incur a transfer fee of 3-5% of the total amount.
As an added bonus, some credit card companies are offering 0% APR introductory periods for balance transfers, which would effectively allow applicants to avoid paying interest on their credit card debt for that period. These offers typically have a term of up to 18 months and are reserved for borrowers with very good to excellent credit ratings, which is defined by the FICO model as a credit score of 740 or higher.
You can compare balance transfer credit cards, including those with interest-free offers, for free by visiting Credible.
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3. Debt Consolidation Loan
Debt consolidation loans are another popular way to pay off credit card balances. A debt consolidation loan is a type of unsecured, lump sum personal loan that is repaid in monthly installments at a fixed interest rate.
The average interest rate on a two-year personal loan, according to the Federal Reserve, is 9.09%. This is the lowest rate on personal loans in the history of Fed data. In comparison, the average credit card rate is 16.44%.
Thanks to lower interest rates and a consistent repayment schedule, credit card consolidation can save some borrowers thousands of dollars over time. Applicants with good credit qualify for the lowest personal loan rates available, but debt consolidation loans may not be worthwhile for borrowers with poor or fair credit.
Personal loan interest rates can vary from one lender to another, so it’s important to compare multiple offers when considering debt consolidation. You can browse current personal loan rates in the table below and visit Credible to compare quotes from multiple personal loan lenders at once without compromising your credit score.
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