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Antonio Ruiz Camacho
Principal Writer
Antonio Ruiz-Camacho is a principal writer covering personal finance. Prior to this, he was with Bankrate Credit Cards and CreditCards.com, where he led the editorial team for nearly five years. His writing has appeared in The New York Times, Texas Monthly, Texas Highways, Salon and elsewhere. Also a fiction writer, he earned his MFA from The University of Texas at Austin’s New Writers Project and is the author of the award-winning short story collection “Barefoot Dogs.”
Jaclyn DeJohn
Editor
Jaclyn is a CNET Money editor who relishes the sweet spot between numbers and words. With responsibility for overseeing CNET’s credit card coverage, she writes and edits news, reviews and advice. She has experience covering business, personal finance and economics, and previously managed contracts and investments as a real estate agent. Her tech interests include Tesla, SpaceX, The Boring Company and Neuralink.
CNET editors independently choose every product and service we cover. Though we can’t review every available financial company or offer, we strive to make comprehensive, rigorous comparisons in order to highlight the best of them. For many of these products and services, we earn a commission. The compensation we receive may impact how products and links appear on our site.
We are an independent publisher. Our advertisers do not direct our editorial content. Any opinions, analyses, reviews, or recommendations expressed in editorial content are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by the advertiser.
To support our work, we are paid in different ways for providing advertising services. For example, some advertisers pay us to display ads, others pay us when you click on certain links, and others pay us when you submit your information to request a quote or other offer details. CNET’s compensation is never tied to whether you purchase an insurance product. We don’t charge you for our services. The compensation we receive and other factors, such as your location, may impact what ads and links appear on our site, and how, where, and in what order ads and links appear.
Our insurance content may include references to or advertisements by our corporate affiliate HomeInsurance.com LLC, a licensed insurance producer (NPN: 8781838). And HomeInsurance.com LLC may receive compensation from third parties if you choose to visit and transact on their website. However, all CNET editorial content is independently researched and developed without regard to our corporate relationship to HomeInsurance.com LLC or its advertiser relationships.
Our content may include summaries of insurance providers, or their products or services. CNET is not an insurance agency or broker. We do not transact in the business of insurance in any manner, and we are not attempting to sell insurance or asking or urging you to apply for a particular kind of insurance from a particular company.
In a digital world, information only matters if it’s timely, relevant, and credible. We promise to do whatever is necessary to get you the information you need when you need it, to make our opinions fair and useful, and to make sure our facts are accurate.
If a popular product is on store shelves, you can count on CNET for immediate commentary and benchmark analysis as soon as possible. We promise to publish credible information we have as soon as we have it, throughout a product’s life cycle, from its first public announcement to any potential recall or emergence of a competing device.
How will we know if we’re fulfilling our mission? We constantly monitor our competition, user activity, and journalistic awards. We scour and scrutinize blogs, sites, aggregators, RSS feeds, and any other available resources, and editors at all levels of our organization continuously review our coverage.
But you’re the final judge. We ask that you inform us whenever you find an error, spot a gap in our coverage, or have any other suggestions for improvement. Readers are part of the CNET family, and the strength of that relationship is the ultimate test of our success. Find out more here.
Borrowed money is becoming more expensive as the Federal Reserve raises interest rates to combat inflation.
With more interest rate hikes on the way, credit card debt will be harder to pay off in the long run.
To save the most money, you should make a plan to pay off your credit card debt quickly.
In response to rampant inflation, the Federal Reserve — the US’ central bank, which is in charge of monetary policy — has initiated several interest rate hikes since March. Yet another rate hike is likely next week when the Fed meets July 26 and 27. This has a ripple effect through nearly every part of the economy, including financial tools like credit cards. Credit card APRs, or interest rates, are increasing in tandem with the Fed’s hikes. Unfortunately, that could cost you a lot of money if you’ve got credit card debt.
If you carry a credit card balance beyond its due date, it’ll be subject to the APR determined by your specific credit card and credit score. For people carrying a balance from month to month, their interest charges will continue to get more expensive with each rate hike. And you typically won’t get notified if your interest rates increase.
Below we explain how this rate increase will affect your credit card statements, with examples, along with some steps you can take to pay down your balance and save money.
By raising the federal funds rate — the overnight interest rate between banks — a domino effect causes credit card APRs to increase. Though the federal funds rate only directly dictates lending between banks, this affects the banks’ costs, which are in turn passed on to consumers.
The prime rate, which is the basis for all borrowing rates for bank customers, is derived from the federal funds rate. Premiums are tacked onto it depending on an applicant’s creditworthiness and institutional factors. This yields effective interest rates, such as credit card annual percentage rates.
But when should you expect credit card rates to rise? Credit card APRs are adjusted almost immediately, usually within a billing cycle or two. You’ve probably already been subject to new APRs from previous rate hikes without even realizing it.
If you pay your credit card bill in full every month, you have nothing to worry about. But if you have a balance on that card, carrying it month to month will cost you more once rates increase.
Here’s an example. Let’s say you carry a credit card balance of $5,525, which is the national average according to the credit bureau Experian. Meanwhile, the average new credit card interest rate is roughly 20%. If you make only a minimum payment (let’s assume the minimum payment is the standard 2%), paying off your card’s balance would take you just over 58 years and cost you more than $24,750 in interest.
However, if credit card interest rates were to increase by one percentage point, paying off the same balance would take over 76 years and cost over $34,400 in interest. Do your own math using CNET sister site Bankrate’s credit card minimum payment calculator.
So what should you do right now? Here are six steps you can take to pay your credit card balance and save money.
US consumers have done a good job lowering their credit card debt during the pandemic. As Experian found, the average credit card holder lowered his or her card balance by almost $400 in 2021 compared with 2020. So chances are you’re already in debt-paying mode. Kudos to you!
The first step to paying off your debt is simple: Apply any disposable income to credit card debt. (And if you don’t have enough disposable income to begin with, don’t panic. I’ll get to that in a minute.)
Where to begin? The average US consumer has around three credit cards, so there’s a chance your credit card debt is spread across multiple balances. There are two popular methods for paying down multiple balances: the snowball method and the avalanche method.
Which method is better? Avalanche method fanatics — and many personal finance experts — will tell you that paying off high-interest debt first makes more sense from the financial standpoint. The faster you pay debt this way, they say, the more money you’ll save in interest over time. But if paying off that debt will take you years, you may be discouraged by what seems like minimal progress for maximum effort. You might end up throwing in the towel and keep accruing debt.
My advice is to go with the method that’ll keep you going, whether it’s snowball, avalanche or a combination of both. In the end, what’s important is to save money in interest one way or another.
If you have a good credit score, chances are you may be eligible to apply for a balance transfer credit card. The best balance transfer cards let you transfer a balance from another card — as long as it’s from a different bank — and pay it with no interest for a set period of time, usually between 12 and 18 months. Some cards in the market are currently offering up to 21 months.
Make sure to consider fees when shopping for a balance transfer card. Most cards charge a balance transfer fee, usually 3% of the amount transferred, though some cards charge no balance transfer fees.
Next, use CNET sister site Bankrate’s Credit Card Balance Transfer Calculator to estimate how long it’ll take you to pay off that balance based on how much you could pay each month. Then, look for a card with a similar zero interest promotional period. Remember that once the promotional period ends, the card’s regular APR will kick in, and you’ll start paying interest on any remaining balance on the card. Consider applying for the card that, combining balance transfer fees and intro period, will allow you to pay off your balance for less.
Earning cash back, points and miles on everyday purchases and redeeming them for free trips or the newest smartphone is every savvy cardholder’s dream. But if you’re carrying a balance on your credit cards and keep charging expenses you can’t pay at the end of the month for the sake of earning points, you need to stop immediately.
Here’s why. As I mentioned before, the current average interest rate is above 16%. Some of the best credit cards earn up to 6% back in rewards per dollar spent on specific categories, like grocery store purchases or airline tickets. However, most of the best flat-rate cash back cards earn no more than 2%. Any cash back, points or miles earned will be easily wiped out by interest if you don’t pay for your purchases in full when your statement is due.
If you carry a balance, there’s a way to put those hard-earned cash-back dollars to good use. Use them to lower the balance on your card instead by redeeming them for a statement credit.
But what if you don’t have any additional cash at the end of the day, or the month, to pay down card debt?
That might be the reason you got into debt to begin with — and that’s OK. We’ve all been there. But adding an extra source of income can help you tackle any kind of debt faster, including your credit card’s.
Here are a few ideas you can try to earn more disposable income and pay down credit card debt:
Credit cards are great financial instruments to pay for large or unexpected purchases over time, improve your credit, earn points or cash back for trips or dream buys, or even give you access to generous travel benefits, like airport lounges or priority security access. But they can also tempt you to overspend and to incur debt fast if you don’t manage them responsibly.
If you find yourself spending more when using a credit card, maybe it’s time to give plastic a break. Studies suggest that paying with a credit card might lead to overspending because the “pay pain” is removed from the transaction. In other words, when you charge a purchase on your credit card, the money doesn’t leave your wallet or bank account right away, which may mislead you into thinking you can afford whatever you’re buying.
Switching to cash might be more difficult than before, especially since many businesses during the pandemic switched to contactless payments or stopped accepting cash, for safety reasons.
However, you could use a P2P payment app, like Venmo or Zelle, or simply your debit card. That way, the moment you make a purchase or pay a bill, the money gets instantly withdrawn from your bank account, helping you get a better sense of how much you’re spending.
If you don’t carry a balance on your credit card right now, congratulations! But if you have good credit, you might still want to consider applying for a no-interest credit card. Even if you pay your balance in full every month, there may be some benefits in the midst of rising interest rates. You can pay for a big-ticket purchase interest-free, or have a zero percent card on hand in case of emergency.
Improving your credit utilization ratio and upping your number of accounts by opening a new credit card can be beneficial for your credit score, too. This type of simple move could be really beneficial for you in the long run, particularly if you plan to finance a home, auto or other big purchase in the future.
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