Why Credit Card Debt is More Expensive Than Ever

A frustrated man with an open laptop

It seems that every time we turn on the news, there's reports of another interest rate hike. But it’s not always immediately clear what those hikes mean for the average consumer.

It’s simple: it means that debt — every type of debt — is more expensive. Mortgages, loans, credit cards all become more expensive, because an increase in the interest rates at the Central Bank (aka the Fed) causes an upswing in interest rates anywhere.

And the biggest impact is on credit card interest rates. As interest rates rise, the cost of any rollover balance on your credit cards will also increase — and has increased already.

Americans’ Household Savings Have Been Depleted

During the peak pandemic years, household savings were at an all-time high as people stayed home and didn’t spend money on commuting, entertainment, gym memberships, restaurants, and travel. And then came the stimulus checks, which gave many Americans a sense of cushion and security.

But in mid-2022, the cost of living skyrocketed, as the economy hit growth strides. This high demand, paired with supply chain disruptions, led to historic increases in inflation. Americans’ savings soon disappeared, often just to buy groceries (and those $5 cartons of eggs) and pay the bills. Many households stopped saving altogether (almost 50 percent of households have less or no savings than they did a year ago, according to Bankrate).

Many people were forced to turn to credit cards to bridge the gap, hoping the unbelievable grocery prices, rising real estate/housing prices, and inflation would deflate. But that isn’t what has happened. And wages haven’t kept pace with inflation, either, meaning all Americans are earning 7-8% less than they were two years ago, if their company didn’t provide cost-of-living wage increases.

Credit Card Debt is At Record Levels

Living in the squeeze between these two powerful economic forces — inflation plus rising interest rates — Americans have added debt faster than ever before, completely wiping out pandemic savings.

And the continued upswing in interest rates means that credit card debt is more expensive than ever. As interest compounds — adding on to itself, month after month when you don’t pay off balances in full — you effectively find yourself running away from a debt snowball that is racing toward you. This all makes it much more difficult for Americans to pay down their existing credit card debt and stop the vicious cycle.

Now is the Time to Pay Down Your Debt

These numbers are a little alarming. But the simple truth is they make one thing very clear: if you are carrying a significant amount of credit card debt that you cannot pay off yourself in the next several months, you need to make a plan.

Anyone with burdensome debt should now be seriously considering how to cut, eliminate, or quickly resolve credit card debt before it spirals further out of control. Interest rates are still likely going to increase further, and the debt just continues to compound.

Smart Solutions for Your Credit Card Debt

How can you deal with mounting credit card debt without getting caught in the interest rate churn? There are a few tried-and-tested debt management tools that may become the saving grace for millions of Americans caught in this unfortunate but easily understood trap.

Debt Consolidation Loan

A debt consolidation loan allows you to wrap up all your debts into a single loan, instead of carrying debt spread out over multiple creditors. In other words, you take out one loan to pay off all your credit cards and deal with exactly one interest rate and lender in the future. The important part? That loan interest rate is usually fixed, meaning you lock in a rate that will not continue to go up, unlike the rates on your credit cards.

Debt consolidation loans also typically offer you a better interest rate than what you are paying on your credit cards, which is just an additional layer of savings.

No compounding. No increasing interest rates. One monthly payment.

Debt-Resolution Program

A debt-resolution program is when you work with lawyers or experienced financial consultants who negotiate your debt on your behalf, to pay off a settlement that is less than the total amount owed. This is an especially appealing option if you don’t qualify for the best loan interest rates and it can make it possible to pay off a seemingly impossible debt amount with a settlement that is within your means.

For example, if you are carrying $30,000 in debt with rising interest payments, a debt-resolution program might help you bring that down to only $19,000 in payments, and possibly with a more favorable payment plan that you can afford more easily. There are usually associated fees for these services, but your total payout is most likely going to be less than what you currently owe.

Why do creditors agree to these settlements? Because some money, promised with a clear payment plan, is better than none.

Take Action — Today — to Resolve Your Debt

Credit card debt is only going to get more expensive. The key is to make a plan and act on it as soon as possible. Contact us today to explore options before ever-increasing interest rates put a solution out of reach. Put yourself on the path to financial freedom!