Financial Planning
June 20, 2022

6 ways to lower credit card debt amid Fed rate hikes in 2022

Inflation this year is pushing everyday prices higher, forcing consumers to carry more credit card debt.

When the economy is in trouble, such as with high inflation, interest rates, and a falling stock market, it can be very oppressive.

With the price of almost everything going up this year, a lot of us are racking up more debt on our credit cards. Sometimes it’s because prices are higher, and sometimes we’re relying on our cards just to make ends meet. In April 2022, revolving credit use (as known as “credit card debt”) grew at an annualized rate of 19.6%. That’s a new record for plastic-loving Americans.

On top of carrying more debt on our cards, the Fed's recent decisions to raise benchmark interest rates will undoubtedly lead to higher interest rates on our credit cards too. (More benchmark increases are likely in the months ahead as well.)

The upshot: using our cards is about to get a lot more expensive. And with card use on the rise, that’s going to hit a lot of us hard.

The remedy: start paying off card balances now, starting with the card with the highest interest charges every month. 

7 ways to lower credit card debt

1. Shift how you use your credit cards now

We too often use cards without a specific plan. Or a plan to pay off a specific purchase over the months ahead. But as we’ve just noted, the months ahead are going to get expensive. Carrying a balance on your credit cards over the months ahead is going to be more expensive than ever.

Try saving now and spending it when you have it. Create targeted savings dedicated to purchases or expenses you’d otherwise put on your cards today. Major purchases will get delayed, it takes some planning, and it doesn’t allow for much instant gratification. But it is  simple to do – and a responsible way to manage your money, especially when credit is so expensive. 

2. Use a debt reduction method

Reducing or paying off your card balances is going to save you money over the months ahead. The more you can pay off, the less you’ll pay in interest charges, especially as interest rates go up.

Debt reduction methods are both popular and effective. When you have a plan for paying off your cards, you’re likely to be more successful at it.

Because high interest rates are the culprit right now, try working with the “debt avalanche” method. While you’ll pay the minimum due on all your cards, you’ll pay more on the card with the highest interest charge each month. It’s a good way to target high interest charges. 

But the math can be tough month after month, and it can take a while to see results. If debt avalanche isn’t your cup of tea, try the “debt snowball” method. You’ll focus on the card with the lowest balance each month – and get a few quick victories as you clear more cards one by one. 

3. Try a balance transfer

Balance transfers are built to address high-interest credit cards. If you haven’t used before, they’re pretty slick. Look for an offer with an introductory rate of 0% for as long as possible (from 12 to 24 months). Then transfer balances from your other cards, so you at least don’t pay interest while the intro rate applies.

The trick is paying off your balance transfer before the intro rate period ends. Make a plan and budget funds every month. At the end of the intro period, your rate will probably jump to match your other cards. 

4. Negotiate with your credit card issuer

Many people struggling with card debt don't ask for help. Try talking to your credit card issuer and see what they can do to lower your APR.

Before you contact your creditor, make sure to check your credit report. Your credit will have it at hand, so it’s best to avoid any surprises, and it might help you figure out your negotiating position.

5. Try a personal loan or a debt-consolidation loan

Debt consolidation, with a low-interest personal loan or balance transfer, can help you get out from under high interest rates. You’ll use the lump from your loan to pay off your balances (or, with a balance transfer, move the balances to your new account). You’ll still have to pay the full balances, but your loan or balance will be at a lower rate. 

You’ll get a lower monthly payment, and might just be what the doctor order in this expensive credit climate. 

6. Use a non-profit credit counseling service

If you're not comfortable taling with your credit card issuer, consider getting help from a credit counseling agency. A credit counselor can help you set up a debt management plan. This type of debt management program can help you manage your debts and keep them from getting worse. 

Some can also negotiate on your behalf, arranging for a settlement with your creditor. If you’re looking for settlement help, be sure to use a non-profit service.

Recommended Readings:

Record-breaking credit card debt and the summer of 2022

Top 10 common credit card mistakes and ways to avoid them.

Pranay Chirla
Technical Content Writer
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