Rising inflation, interest rates, and the end of pandemic relief make tackling credit card debt essential.

For many Americans, financial stress is mounting, particularly for those who had little savings before the pandemic. A combination of rising inflation, higher interest rates, and the end of pandemic-era relief measures, such as the student loan moratorium, has contributed to an alarming increase in credit card debt.

In the third quarter of 2023, U.S. credit card debt surpassed $1.05 trillion, with the average interest rate hitting 21.5%, the highest level since the Federal Reserve began tracking rates in 1994. According to Moody’s, credit card delinquencies have now exceeded pre-pandemic levels, showing clear signs of financial strain despite the overall health of consumers.

If you’re struggling with mounting credit card debt, here are some key strategies to help alleviate the pressure:

NEGOTIATE A LOWER INTEREST RATE

Start by contacting your credit card company to request a reduction in your interest rate. While the Federal Reserve is not expected to cut rates soon, the average credit card interest rate is already much higher than the Federal Reserve’s rate. Many credit card companies offer promotional rates, which can help you avoid accumulating excessive interest, especially if you transfer balances to low or zero-interest cards for a limited time. However, balance transfer fees may apply, and the balance must be paid off before the promotional period ends to avoid extra charges.

FOCUS ON PAYING OFF HIGH-INTEREST DEBT FIRST

The “avalanche method” is an efficient strategy where you focus on paying off high-interest debt first. This is the most effective way to reduce the overall cost of your debt. Alternatively, the “snowball method” involves paying off smaller debts first to gain psychological momentum before tackling larger ones. Some financial advisors recommend this method for its motivational benefits.

Nonprofit credit counselling services, like those offered by the National Foundation for Credit Counseling, can provide further guidance on managing your debt.

CONSOLIDATE LOANS AND REDUCE STUDENT LOAN PAYMENTS

Consolidating loans can help streamline your finances, especially if you can secure a fixed interest rate. The Federal Trade Commission’s Consumer Advice guide offers useful tools for debt management. When it comes to student loans, consolidating them and exploring options to lower monthly payments is crucial. Programs like Public Service Loan Forgiveness and income-driven repayment options can provide much-needed relief for borrowers.

CREATE A BUDGET THAT FACTORS IN INFLATION

Although inflation has decreased from its peak, the cost of essential goods and services remains high. For example, the price of bread rose from $1.54 in December 2020 to $2.02 by the end of last year, and rent for a two-bedroom property increased from $1,424 to $1,713 during the same period.

America Saves, a non-profit campaign, provides budgeting advice to help manage these higher costs. Additionally, service providers like utilities, phone companies, and insurers are often open to negotiations. Calling and requesting the lowest rate or available discounts can lead to meaningful savings.

As financial pressure continues to mount, taking proactive steps to manage your credit card debt and adjust your budget can provide much-needed relief in these challenging times.