Introduction
With interest rate hikes on the horizon, it’s a good time to assess the state of your credit card debt. If you’re carrying a balance right now, then you’re likely wondering how rising interest rates will affect your monthly payment. The answer depends on what type of credit card you have—and even then, there are some options that could help ease the pain of higher interest rates. So let’s dive in!
If you have a variable rate credit card
If you have a variable rate credit card, it’s hard to predict how much your interest rate will rise, how long it will stay at a high rate, or when the rate will fall again. If interest rates go up, then so will your monthly minimum payment—but only if you have a variable rate card (which is more common). With a variable-rate credit card, they can increase or decrease at any time—even between statements—and they’re typically higher than fixed-rate cards anyway. Therefore, it’s important that you pay off your debt as quickly as possible to avoid surprises when it comes to rising rates.
If you have a fixed rate credit card
If you have a fixed rate credit card, that means your interest rate won’t change for the life of your card. That can be great if you keep your balance low and pay on time. If not, it could end up costing you more money in the long run.
When interest rates rise, the best way to protect yourself is to pay down your credit card debt as quickly as possible. Here’s what you can do:
- Pay down your debt as quickly as possible. If interest rates rise, paying off your balance will help you avoid paying more in the long run.
- Transfer your balance to a low-interest credit card. Look for cards with introductory 0% APR periods, which allow you to postpone making payments while interest accumulates on that balance until the end of the term. Then make an effort to pay it back before it becomes due at its new rate.
- Consider consolidating your debt via a personal loan, which may offer better terms than those found on today’s high-interest credit cards.
Pay off your debt in full.
If you have a large balance, paying it off is the only way to avoid interest charges. Set a goal of paying off the balance in a specific amount of time – without charging more to the account. Schedule automatic payments each month so you don’t have to remember. Even if you can’t afford to pay off your entire balance within a shorter amount of time, at least consider making a dent by paying more than the minimum monthly payment. Then move on to explore other options with the remainder of the balance.
Transfer your balance to a low-interest credit card.
Transferring your balance to a low-interest credit card can save you money. You’ll pay less interest, making it easier to meet your monthly minimum payments. This is especially useful if you’re carrying a large amount of debt and need as much help paying it off as possible.
If transferring your balance to a lower rate sounds like an attractive option to you, be sure to check out all of the fine print before signing on. In particular, make sure that any introductory offers come with no fees and don’t include any other strings attached—many companies offer perks like cash-back bonuses or waived annual fees during this time, but they usually expire within six months.
Consolidate your debt via a personal loan.
You also might be able to consolidate your credit card debt by applying for a lower rate personal loan. A personal loan is a single loan that pays off all of your debts, including credit cards and other loans such as car or student loans. For example, the average credit card interest rate is currently over 20% while personal loans tend to fall between 5-12%. If you have several credit cards with balances greater than $10,000 each, consolidating them into one loan could save you hundreds of dollars every year!
A personal loan can be a good option if you have multiple debts and haven’t been able to consolidate them into a single loan elsewhere. If you do decide to get a personal loan, be sure to shop around and compare rates. Credit Direct makes it simple with one application and multiple lending partners. That way you get the best offer available. Check rates in minutes with no effect to credit score here.
Conclusion
We know that it can be hard to pay down debt, but the sooner you start the better. If your interest rate is going up, then you need to do whatever it takes to get rid of that debt as soon as possible. It’s important not only for your finances but also because high-interest credit card debt can harm your credit score and make it difficult for you to qualify for other loans or mortgages in the future!
Check your rate on a personal loan with Credit Direct with no effect to credit score. See what you could qualify for today!