Your credit card balance could soon be cheaper

The biggest news in the world of personal finance on September 18, 2024 was the first of what will likely be several rate cuts on federal funds. The Federal Reserve cut its key interest rate by half a percentage point, a deeper cut than many experts had expected. As a result, we will likely soon see lower interest rates on Americans’ savings accounts, personal loans and credit cards.

If you have a credit card balance, that’s good news for you—but not as good as you might hope, considering how expensive credit card debt already is. Here’s a closer look at past interest rate trends as well as some ways to get out of debt.

Credit Card Interest: Then and Now

To learn more about how credit card interest rates have risen in recent years, we can turn to data collected by the Federal Reserve Bank of St. Louis. In May 2022, immediately after the Federal Reserve began raising its key interest rate, the average interest rate on credit card accounts (as opposed to accounts with a 0 APR) was 16.65%. Since the last reported figure (in May 2024), this number has increased to 22.76%.

We could see credit card interest rates fall again now as the Federal Reserve makes further rate cuts this year and into 2025. But ultimately, the difference of a few percentage points in your card’s APR isn’t going to save you much money on payments if you carry a scale. The best way to deal with this is to pay off this balance if possible.

Prioritize paying out your cards

Despite the promise of lower credit card interest rates, credit cards remain one of the most expensive ways to borrow money. And if you have a balance from month to month, it’s worth focusing on finally paying it off.

When you live paycheck to paycheck, this is easier said than done. Here are a few tips for dealing with credit card debt—including a method that can completely transform your finances.

Balance transfer card

If you have good credit, you may qualify for one of the best balance transfer credit cards. However, this is best suited for those who don’t have a lot of debt and expect to be able to pay it off in a relatively short period of time. You will often receive a period (often a year to 21 months) with an initial APR of 0%.

You can divide your balance by the number of months at 0% to get a monthly payment that will leave you debt-free after the introductory period ends. You will most likely have to pay a balance transfer fee of 3% to 5%. So keep this in mind. By transferring your balance, your original cards will no longer have any balance. Therefore, avoid using them so that you do not end up in the same situation again.

Check out our picks for the best balance transfer cardswhich can make it easier to pay off your balance while avoiding high interest rates.

Debt Consolidation Loans

Do you have fairly good credit (670 or better)? You may be able to consolidate your credit card debt with a top-rated debt consolidation loan. These include a fixed interest rate that is lower than a credit card’s interest rate, a set repayment term (often two to five years), and the ability to make just one payment rather than potentially multiple payments. Even with this option, your credit cards will remain open, so be careful not to take on any additional debt.

Debt settlement

I would consider this option as a last resort. You may be able to negotiate with your creditors to pay less than you owe to become debt-free. And you can do this yourself instead of paying a fraudulent “credit repair company”! But unlike the previous two methods, your credit card accounts will be closed and your credit score will likely be significantly affected by this step.

Get professional help

If you’re drowning in debt and out of options, contact a nonprofit credit counseling service like the National Foundation for Credit Counseling. A debt management plan will be created for you and your access to credit will be restricted, so there will also be a drop in your credit rating. But you can still get help budgeting and managing your finances in the future.

Increase your income

OK, here’s the method I used in 2022 – but I realize not everyone has this skill. I was fortunate to have extra time that allowed me to work a part-time job from home. Here’s the gist: When you start a side hustle, all the money you make (minus taxes) can be applied directly toward your debt repayment.

And if you stick with this side hustle after paying off your debt, you can enjoy the benefits of increased income. This could mean achieving a big financial goal (such as becoming a homeowner), investing for retirement, or topping up your savings account.

Even though credit card interest rates are decreasing and maintaining a balance becomes less expensive, it is still not advisable to allow credit card debt to remain. Consider using one of these methods to get out of the situation.