Consumers Pay $ 104 Billion in Interest and Credit Card Fees
The amount of money American consumers spend each year in credit card fees and interest has passed the $ 100 billion mark, according to a new study.
With over $ 1,000 billion in credit card debt and rising interest rates, consumers paid nearly $ 104 billion in these fees in the 12 months ended March 31. , according to data from Magnify Money.
This figure is 11% more than the 93.7 billion dollars recorded a year earlier and 39% more than the 74.6 dollars recorded in 2013.
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The company also predicts that when it takes its annual measurement after March 31, the total fees and interest paid in the previous 12 months could exceed $ 110 billion.
This projection takes into account four quarter-point increases in a key interest rate set by the Federal Reserve. While it’s unclear exactly what the Fed will do and when, one thing is for sure: Any time that rate goes up, credit cards typically follow suit within a day or two.
Already, the Federal Reserve has raised rates twice this year by a quarter point each time. This follows increases of three quarters of a point last year and one in 2015 and 2016. At its last meeting, Fed policymakers indicated that two more shocks were likely in the works this year, with incremental increases. continuing in 2019.
While the current 2% is historically low, credit card interest rates are much higher than the federal rate.
The average interest rate on credit cards is close to 17%, although some can be much higher, depending on the type of card itself (i.e. a retail store card) and your credit score.
If you’re one of those consumers swallowed up by plastic debt and you don’t know how to get out of it, get organized first.
“You have to make a plan to get out of debt,” said Nick Clements, co-founder of Magnify Money. “It has to be concrete and there has to be an end date. “
There is also another issue that you may need to address: the psychological one.
“You have to face the reasons why you got into debt anyway,” Clements said. “If it’s because of a [spending] mentality, that has to change.
Here are some ways to pay off credit card debt.
Balance transfer options
If your credit score is high enough to qualify for an interest-free or low-interest balance transfer offer, consider taking it.
While these offers usually come with a balance transfer fee, the introductory rate can last anywhere from a few months to a year or more. At the end of the transaction, the remaining balance begins to accumulate interest at the rate then in effect.
Not only do you avoid paying high interest on the debt, but you can potentially pay it off faster because all (or most) of your payment will go towards the balance instead of interest.
However, going down this route involves a certain amount of self-discipline: you can’t use any available credit on new and old cards or you’ll just get into more debt.
“If you’re the type who charges up to the limit on every credit card, a zero percent transfer probably isn’t going to change that,” Clements said. “If you are very disciplined, this can be a great way to manage your debt. “
Depending on your credit score, you may be able to consolidate your credit card debt into a personal loan and pay a lower interest rate while doing so.
The rates for these loans vary widely, ranging from around 4% to 36%. The higher your credit score, the better your rate will be. The amount you borrow, as well as the length of the loan, will also affect the interest rate.
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Remember that if the personal loan is part of your debt plan, you will have to destroy the repaid card. Again, if you simply charge more, you will end up in a worse financial situation.
In addition, there is no flexibility in the repayment of the loan.
“The payment is the payment,” Clements said. “So you have to know that you will still be able to pay the terms of the loan. “
Develop a strategy for your reimbursement efforts
Experts recommend several approaches to paying off credit card debt.
The first approach is to channel most of your repayments to the card with the highest interest rate. In other words, you pay the minimum on the lower rate cards and put in all you can on top of the debt that is costing you the most in interest.
Once the most expensive debt is paid off, you switch to the next highest rate card.
The other strategy is to strive to pay off lower balances first, which can give you a sense of accomplishment and momentum to continue tackling your debt. However, you could end up paying more interest if you go this route.