Credit card debt is surging at a record-high rate, NY Fed reports
Americans are racking up credit card debt at a record rate, says the Federal Reserve Bank of New York.
Credit card balances reached $856 billion in the fourth quarter of 2021, up $52 billion (6.5%) from the previous quarter. This is the largest quarterly increase seen since the New York 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 a record high of $927 billion. Indeed, consumers paid off their credit card balances at the start of the coronavirus pandemic – although they now appear to be returning to their pre-pandemic spending habits.
If you’re struggling to pay off high-interest credit card debt, keep reading to learn about three strategies that could help you get out of debt fast. You can also compare a variety of financial products, from balance transfer cards to debt consolidation loans, on Credible’s online marketplace.
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3 ways to get out of credit card debt
If you’re one of the millions of American consumers who increased their credit card balances at the end of 2021, you might be looking for ways to pay off your debt. Here are three debt repayment strategies that can help you reduce your credit card balance quickly:
- Non-profit credit counseling
- Balance Transfer Cards
- Debt consolidation loans
Learn more about each credit card debt repayment method in the sections below.
1. Non-profit credit counseling
Credit counseling agencies offer free or low cost debt relief services for 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
- Sign up for a debt management plan (DMP)
Under a DMP, a nonprofit credit counselor will work with your creditors on your behalf to consolidate your debts into one monthly payment. Signing up for a DMP usually comes with a monthly fee, which can be waived or reduced depending on your financial situation.
You can find a certified credit counselor through trade groups like National Credit Counseling Foundation (NFCC) or the Financial Counseling Association of America (FCAA). You can also view a full list of accredited non-profit credit counseling agencies at the Department of Justice website.
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2. Balance Transfer Cards
Although credit counseling may be the preferred option for debtors with fair or poor credit, consumers with good credit may consider other methods of debt repayment such as credit card balance transfers.
A balance transfer involves moving your current credit card debt to a new account with better terms, such as a lower interest rate. You may be able to transfer the balance from one or more credit cards to a single card using this method, although you may incur a balance transfer fee of 3-5% of the total amount.
As a bonus, some credit card companies offer introductory periods of 0% APR for balance transfers, which would effectively allow applicants to avoid paying interest on their credit card debt during this period. These offers generally last up to 18 months and are reserved for borrowers with very good to excellent credit, as defined by the FICO model such as a credit score of 740 or higher.
You can compare balance transfer credit cards, including those with zero rate offers, for free by visiting Credible.
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3. Debt consolidation loans
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 rate for a personal loan over two years is 9.09%, according to the Federal Reserve. These are the lowest personal loan rates in Fed data history. In comparison, the average credit card interest rate is 16.44%.
With lower interest rates and a consistent repayment schedule, credit card consolidation can save some borrowers thousands of dollars over time. Applicants with good credit will qualify for the lowest personal loan rates available, but debt consolidation loans may not be worth it for borrowers with bad or fair credit.
Personal loan interest rates can vary from lender to lender, so it’s important to compare multiple offers if you’re considering debt consolidation. You can browse the current personal loan rates in the table below and visit Credible to compare offers from multiple personal lenders at once without affecting your credit score.
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