March 24, 2023
Life has a way of getting ahead of your finances. For many of us, 2022 was a rough year, and credit card statistics prove it.
- According to the Federal Reserve Bank of New York, Americans were carrying $986 billion of credit card debt at the end of 2022.
- It’s the highest total since the New York Fed began tracking credit card debt in 1999 and a year-over-year increase of 15.2 percent.
- The number also represents the largest quarterly jump the Fed has ever tracked.
Meanwhile, as debt has increased, so have delinquency levels. Delinquency affected 2.5 percent of debt balances at 2022’s end, with younger borrowers in their 20s and 30s most likely to struggle with debt from credit cards and auto loans. That figure is expected to increase if inflation, spending and interest rates remain high.
Meanwhile, as debt has increased, so have delinquency levels. Delinquency affected 2.5 percent of debt balances at 2022’s end, with younger borrowers in their 20s and 30s most likely to struggle with debt from credit cards and auto loans. That figure is expected to increase if inflation, spending and interest rates remain high.
Managing credit card balances is key not only to being able to pay off debt but also to being able to obtain additional credit for significant future purchases like a car or home. It impacts how much you’ll pay for necessities like car insurance, for example, or whether you’ll be able to lease a nice condominium with amenities.
If credit card balances are dragging you down — and even if they’re not yet — it’s time to look at some preemptive refinancing options that will help you to pay down balances, preserve your credit and still manage your day-to-day budgetary responsibilities.
How Credit Cards Work
Even people who’ve used credit cards for years aren’t always certain of how their nifty plastic rectangles actually handle purchases and payments.
The most important detail to know about any particular card is its APR—annual percentage rate. Every credit card account has an APR, an interest rate that the credit card company will charge on any outstanding balance that remains on the card month to month. With each bill, you’ll owe the money you spent on your purchases as well as the interest that the credit card issuer charges you for loaning you the money you haven’t yet paid back. Most credit cards have a variable rate that rises and falls in response to federal interest rate indexes.
However, the rate that the credit card issuer will offer is also tied to your personal credit rating. If you have a good credit rating, you’re usually eligible for lower interest rates—and often rewards programs too. Lower credit scores typically result in higher interest rates. Late payments can also escalate interest rates and fees. As a side note, many store-issued credit cards have uniformly high APRs for all users.
According to CreditCards.com’s report for the first week of March 2023, “the average maximum APR for all credit card categories is 27.74 percent . . . while the average median card APR—which is closer to what many cardholders are assigned — is 24.06 percent.”
To put that in perspective, at the end of 2022, TransUnion reported that the average credit card balance rose to $5,805 — at an APR of nearly 20 percent, it’s a figure that Bankrate calculated would take 17 years of minimum payments to pay off and would cost $8,213 in interest — more than $2,000 over the original debt amount.
Obviously, the best way to avoid credit card interest is to pay off monthly balances in full, but in today’s economy, that’s not always possible. The next-best option is to reduce the interest rate or pause it for a period of time while you pay off your debt. That’s often where transferring balances to a more advantageous card comes in.
Transfer Balances to a Lower-Interest Credit Card
Rather than struggle with an unwieldy balance under increasingly difficult conditions, you can use a balance transfer to a new card and manage your debt on a clean slate—often with a zero-interest offer.
For example, La Capitol offers three Visa credit card options and all three feature zero interest on balance transfers for 12 months.
- La Capitol’s Cash Back Visa Signature card offers not only zero interest on balance transfers for 12 months but also zero interest on new purchases for 12 months, plus a $150 reward for using the card for $1,500 in purchases within the first 90 days of having it. Following the introductory period, APRs range from 14.5 percent to 18 percent, and you get one percent cash back on purchases.
- La Capitol’s Prime Plus Visa card offers zero interest on balance transfers for 12 months and a low 1.99-percent APR on new purchases for 12 months. Following the introductory period, it has an interest rate range of 10.5 percent to 18 percent.
- La Capitol’s Rewards Visa card likewise offers zero interest on balance transfers for 12 months and a low 1.99-percent APR on new purchases for 12 months. Following the introductory period, the interest rate ranges from 14.5 percent to 18 percent, and you get one reward point for each dollar spent.
Something to consider when choosing among them is whether you will realistically be able to pay off your debt within the interest-free 12 months. If you know upfront that it will take longer or that you’ll need to make additional purchases along the way, you’ll want to consider the interest rate and balance that you’d have once the 12 months expire.
Pay Off Debts With a Debt Consolidation Loan
Another option is to pay off credit card debt through a debt consolidation loan — typically considered a type of personal loan. You can eliminate multiple card payments that can be hard to manage and instead open a loan with one monthly payment. La Capitol offers a number of options to members in need of funds.
- Our personal signature loans provide you with the cash you need, with interest rates starting as low as 9.49 percent. Terms are flexible, and no collateral is required.
- A line of credit gives you a pre-set dollar amount that you can use during a set period of time. You make payments only on the portion of allotted credit that you use. Our line of credit APRs start as low as 10.25 percent.
- La Capitol also offers the option of a secured loan — a great option if you have savings or a certificate account, for example, that you don’t want to raid but need funds. Simply borrow the money you need, and let your savings serve as a pledged collateral that will remain yours and earn money for you. Low-interest rates are available, and repayment options are flexible.
Transfer Debt to a HELOC or Home Equity Loan
With the increase in home values, a HELOC or home equity loan may be a more preferable choice to a credit card if you need to repair or update your home or home systems. While HELOCs and home equity loans seem similar, they are a bit different.
- A HELOC is a home equity line of credit. You can establish a line of credit based on the amount of equity you have in your home. You can use as much or as little of the line of credit as you need, and you only pay on what you use. La Capitol offers HELOCs at low, variable interest rates with no pre-payment penalties or closing costs.
- A home equity loan lets you borrow a certain amount of money against the equity value you have in your home. You borrow a set amount of money and repay it in set amounts over an established period of time.
Refinancing Credit Card Debt to Make It Manageable
Credit card debt can be difficult beyond the obvious issues of APRs. If you have outstanding balances on multiple cards with different due dates, scheduling payments and managing cash flow for everyday life can be a challenge. Refinancing credit card debt can reduce three, five or even 10 different revolving payments due throughout a month down to one set payment due once a month. You won’t have to worry about late payments because you forgot a due date or got something mixed up.
At La Capitol Federal Credit Union, we want you to have access to all of the financial tools you need to make the most of your money. If you need a breather from high-interest credit card debt or want to establish an efficient way of managing debt before you take it on, we’re ready to help. Start by taking a look at our La Capitol Visa credit cards, and find the option that’s best for you and all that you want to accomplish.