For the first time, credit card debt balances surpassed the $1 trillion mark, the New York Federal Reserve Bank reported this week.
Americans borrowed more than ever on credit the last quarter, as credit card balances rose by $45 billion to $1.03 trillion in the second quarter, the bank reported in its quarterly household debt and credit report.
The number of credit card accounts expanded by 5.48 million to 578.35 million. Credit card debt and auto loans drove overall household debt levels up 1%, to $17.06 trillion for the quarter, according to the report.
The news comes as interest rates are at their peak. Bankrate.com reported variable credit card interest rates at 20.6% during the first week of August.
What can you do to cut down credit card debt as interest rates rise? Here are seven tips from Nationwide Mutual Insurance Company to pay them off as quickly as possible.
1. Stop using your credit card.
If you need help paying off your credit cards, the first step is to completely stop using them. Credit cards are simple to use, and simple to overspend without really thinking about it.
2. Get a realistic fix on your debt.
Gather all your credit card information for all the credit and store cards you have. Calculate total balances to see exactly how much debt you have, so you can create an effective plan for paying it all off.
3. Start a monthly budget.
Create a budget each month of projected expenses and income. This can reveal any opportunities to direct more income toward debt reduction. Budgeting works as a long-term strategy for eliminating debt.
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4. Pay on time.
Always send your payments on time. Creditors often penalize late payments with a higher interest rate, meaning more of your payment goes to interest instead of paying down your balance.
5. Make more than the minimum payment.
If you only make minimum payments each month, which is usually 1% to 2% of the entire balance, you’ll barely make a dent in your debt and end up paying a lot more money over the long run than you originally spent.
6. Focus on cards with low balance or high interest first.
Some financial experts suggest you pay off credit card debt starting with the smallest balance first, which helps create momentum. Other experts recommend paying off credit cards with the highest interest rate first, which saves you money in accrued interest. Both methods make strides toward paying off your credit cards.
7. Request rate reductions.
Call your credit card company and ask for a lower interest rate, which may sometimes work. Certain lenders will lower your interest rate to keep you as a customer.
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