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Rising interest rates have pushed annual percentage rates on credit cards to new highs.

The average annual percentage rate on a new credit card is now over 20%, according to LendingTree’s Tracker. This is the first time that rates have risen above 20% since the tracker was launched in 2018.

Matt Schultz, chief credit analyst at LendingTree, said, “When you take into account that the cost of everything is rising on a daily basis, consumers need to push credit card rates to a new high, but that’s it. That’s where we are.” ,

And rates are poised to go even higher across the board.

The Federal Reserve raised its benchmark interest rate in June 0.75 percentage points, Biggest increase in 28 yearsand indicated that it would continue raising rates throughout the year to curb inflation.

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According to Schultz, the rates consumers are paying on credit card debt follow the actions of the Fed very closely.

“Chances are we are nowhere near where rates are going to go up,” he said.

This can cause problems for Americans with outstanding bills.

credit card balance reached $841 billion in the first three months of the year, According to a report by the Federal Reserve Bank of New York. In the same time frame, 229 million people opened new credit card accounts, up from the previous quarter.

Look for Low Rates to Pay Off Debt

It’s a good idea to try to deal with outstanding credit card debt, if you have them, to avoid overpaying on that balance as those interest rates rise.

“The biggest key to getting out of credit card debt is not to pay a high interest rate on that loan,” said personal finance expert Suze Orman.

Orman offers advice for those who want to stay away from credit card debt to see if you can lower their interest rates.

Doing so will help you pay off your debt faster and ensure that more of your money is going towards clearing what you owe, rather than collecting interest.

There are a few ways to do this, such as balance transfer to another credit card with 0% interest rates for a specified period, taking a personal loan with a lower interest rate or working with a credit counselor to pay off your credit balance. Consolidate your debt with a lower rate.

These options will depend on your personal situation and your credit score, Orman said.

For those with low scores, she recommends reaching out to the National Foundation for Credit Counseling to help you lower your interest rate and get a payment plan.

Choose a Repayment Method

According to John Scherer, a certified financial planner and founder of Trinity Financial Planning in Madison, Wisconsin, if you’re going to pay off your debt while keeping your card open, there are typically two ways people use to erase the balance. We do.

One is to work out all of your outstanding loans on a balance basis and start by paying off the smallest loan.

“Then you get the pace,” said the Shire. “You see some of those things fall off the books, and it feels really cool.”

The second model, which Scherer recommends to individual clients, is to look at all of their outstanding loans and pay off the loan with the highest interest rate first. Over time, this means that you will pay less money to eliminate your debt because you are immediately dealing with the highest interest rates.

Orman also recommends this approach.

She says to meet your credit card debt and add up all the minimum payments due each month. From there, add 20% or more to your total payment and apply it to the loan with the highest interest rate. Once a payment is made, roll that extra payment to the next card, and then roll the next one until everything is erased.

increase savings

In addition to paying off your debt, make sure you’re setting aside some money to build emergency reserves, Scherer said. This is to prevent you from accumulating more debt while you are working to pay off your existing balance.

“You pay it off, but then the transmission blows up or the refrigerator takes a dump on you, and now you’re back on a credit card for another thousand bucks,” he said.

If you want to keep your credit cards open so that you don’t spoil your credit score but don’t overuse them, Orman suggests hiding them from yourself.

“What you want to do is take all your credit cards, put them in a plastic bag and put them in the freezer,” she said. “Don’t tempt yourself.”

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