Credit card interest rates are about to climb higher than they have ever been since before the turn of the century.
A recent CompareCards.com report projects that the latest average annual percentage rate (APR) for credit cards — 15.32 percent — will rise to 15.57 percent this month. That would be the highest average APR since the 1990s — meaning that carrying a credit card balance would be more expensive than it has been since then.
The bad news is unlikely to stop there, however.
The federal funds rate — which the Federal Reserve just increased for the second time this year — is a key influence on credit card APRs. And with Fed rate hikes only expected to continue, the cost of carrying credit card debt is likely to continue climbing.
So, it’s critical that folks with credit card balances act now to stem their losses. As Money Talks News founder Stacy Johnson bluntly puts it in “The 10 Golden Rules of Becoming a Millionaire,” paying interest makes you poorer.
Ideally, you already stave off credit card interest by paying your bill in full every month. If that’s not possible, however, you have two main options for minimizing your interest payments.
1. Lower your credit card rate
Getting a lower credit card APR will save you money every month by lowering the amount of interest you incur on every statement.
Consider transferring your balance to a card with a zero percent APR. Yes, they do exist. You can find and compare them using a free online resource like Money Talks News’ credit card search tool — just click on the “0% APR” category, which you will find in the menu on the left.
The hitch with no-interest cards is that the zero percent rate is generally temporary, meaning it will rise after a certain number of months. Still, these cards are well worth pursuing for many folks with debt.
If you switch to a card with a zero percent rate that lasts for 12 months, for example, you will not pay any interest on your debt for a year. If you can manage to pay off all your credit card debt in that time, you would avoid paying interest on that debt ever again.
Another option is to ask your current credit card company for a lower APR. I’ve done this myself in the past, and it really can be as easy as picking up the phone and asking.
The worst thing that can happen is that you get a “no” — but the chances of you getting a “yes” are better, according to a survey conducted earlier this year. It found that 64 percent of credit card users who had requested a lower rate received it — with the average decrease being 5.5 percentage points.
2. Get out of credit card debt ASAP
Even if you transfer a balance to a no-interest card or get a lower APR on your current card, you must also tackle your debt itself, paying it down as fast as possible. We get into the nitty-gritty of that in “8 Foolproof Steps to Get You Out of Debt Fast.”
Otherwise, your credit card debt is liable to haunt you for years to come.
Say you have $1,000 in credit card debt with a minimum payment of $20, and you manage to get your APR lowered to 12 percent. If you only pay the minimum, it will still take you 99 months — more than eight years — to get out of debt. And in that time, you will have paid a whopping $544.93 in interest payments.
I figured that using an online credit card calculator — there are plenty of them out there.
What have you found is the best way to avoid credit card interest? Share it with us by commenting below or on Facebook.