It’s helpful to know how to use various monetary tools. For instance, you might benefit from utilizing a personal loan calculator or a spreadsheet to keep track of your expenses. However, a credit card might be the most useful tool available because of its versatility.
You may worry about accumulating too much credit card debt in the face of the Fed hiking the interest rate. In this article, we’ll talk about what that means. We’ll also discuss some ways that you can lower your credit card debt.
What Does a Rate Hike Mean?
The Fed is the Federal Reserve System. It’s America’s central banking entity, and it was created back in 1913. It allows there to be central control of U.S. monetary systems so that financial crises are less likely.
When the Fed raises interest rates, it does that to combat inflation. Inflation happens when money is not worth as much because the cost of goods and services goes up.
When the Fed increases interest rates, it costs you more to borrow money from lending entities like banks and credit unions. If you use your credit card to pay for many of the goods and services you buy, though, the Fed hiking the interest rate will impact you as well.
That’s because, since what you need to buy costs more, you’re likely to have higher credit card bills than usual. Let’s go over some ways you can lower your credit card debt in the current economic climate.
1. Pay with Cash
One way to avoid carrying excess credit card debt and potentially paying interest on it is to pay for as much as possible with cash. For instance, if you pay for groceries or utilities with cash, you don’t have to worry about coming up with the money later to cover those credit card charges.
If you pay for services and goods with physical currency, you won’t overspend. That’s a potential danger when you use credit cards.
2. Consolidate Your Debt
Now might be a time to consider debt consolidation if you owe money on multiple credit cards and don’t have the funds to pay them off at the end of a single billing period. You can consolidate debt by getting a personal loan from a bank or credit union.
Even with the Fed raising the interest rate, you’re still liable to get a lower rate from one of these lending entities than you would from credit card companies. This is usually only an option for you, though, if you have at least a decent credit score.
3. Pay High-Interest Debt First
If you don’t feel like debt consolidation is an option for you, you can also pay off your highest-interest credit card debt before you move on to any other cards. Paying off the credit cards with the highest interest rates first makes sound financial sense.
You can also try the snowball method, where you pay off the smallest credit card balances first before moving on to larger ones.
Lowering Credit Card Debt is Possible
If you’re mindful of your spending, you can lower your credit card debt, even now that the Fed has increased interest rates. You can pay for goods and services in cash whenever possible. Doing so means you won’t have to worry about paying interest on your cards if you’re carrying a balance.
You can pay off the high interest debt on your cards first, or you might pay off the smallest balances before moving on to larger ones. You can also look into debt consolidation if you have multiple outstanding credit card bills. You’ll need a high enough credit score for a lending entity to offer you a personal loan with a better interest rate.
By following this formula, you can lower your credit card debt, even with the Fed raising the interest rate.