‘The key is not to be paralyzed by fear.’ Now is the time to be proactive before higher rates show up on your credit card bills.

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Credit card debt can be difficult to manage even in the best of times, but higher and higher interest rates add to this challenge.

In June, the Federal Reserve announced a 0.75% increase in the federal funds rate, its largest rise in nearly 30 years. Increases in this rate tend to make loans more expensive, which means that carrying a balance on your credit card can be more expensive.

But if you create a plan to pay off your credit cards in the coming months, you can save money on interest. Whether you’re tackling debt one-on-one or consolidating with a fixed-rate product like a personal loan, there are strategies that can help.

Why You Should Prioritize Credit Card Debt

Most credit cards have a variable interest rate, which means that the rate can go up and down depending on a few factors, including market conditions. While fixed-rate products like personal loans may not see as much change in interest rates as the rate of federal funds rises, variable-rate products like credit cards are likely to do so.

Higher rates on credit cards mean people will start paying more to have a balance, at a time when family budgets are already tight due to rising consumer costs, says Jeff Arevalo, an expert on financial welfare of the nonprofit credit counseling agency GreenPath.

It can also mean that progress on other important goals, such as saving for a home, is set aside as more people focus on reaching the end of the month. However, Arevalo says there is still a long way to go before an environment of rising rates.

“When [the Federal Reserve increases] interest rates can take a month or two to fully affect credit cards, so ideally, consumers can be proactive, “he says.” If you know these changes are coming and you have those higher balances of credit cards, the key is not to be paralyzed by fear. “

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Tackling Your Credit Card Debt: Getting Started

Brittany Davis, an accredited financial advisor who works with people struggling with credit card debt, says the initial steps to getting out of debt can be the hardest for clients.

First, you need to address the scope of your debt. Davis advises writing down your balance, minimum monthly payment, and interest rate on each credit card to see the full picture of what you owe.

Then, he says, you can use an online tool, such as a debt payment calculator, to connect numbers and compare different strategies. Two popular payment strategies are avalanche methods and snowballs. With the avalanche method, you start with the debt with the highest interest rate and go down, usually saving time and money on interest. With the snowball method, start with the smallest debt and go up, which generates motivation.

Another Davis tip: Stop using your credit cards for now, which means looking at which sites and apps are already linked. While you may remember not to look for a credit card when you make a major purchase, it’s the smaller, recurring expenses like monthly subscriptions that come out to you.

“Money is moving fast now,” Davis says. “It’s easy to forget where our cards are tied. If you’re really serious about not using a credit card while you’re paying for things, be sure to change those accounts to a debit card. “

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Other strategies for dealing with credit card debt

If your debt feels too overwhelming to deal with with the avalanche or snowball method, there are other strategies that can help lighten the load.

Negotiate with your creditors. It never hurts to talk on the phone with your creditors and ask what they can do for you, Davis says, especially if you already have a relationship with them. Your bank or credit union may extend a lower rate, waive a fee, or grant a higher credit limit, which may reduce your use of credit and help you access lower interest financing. the future.

Be aware of the effects of what you are asking for. For example, extending a higher credit limit may require a strong credit roll, which may temporarily remove a few points from your credit score.

Consolidate your debts. If you have high interest debt through multiple credit cards, consolidation is a smart move, especially if you are entitled to a lower rate than you get for your current debts.

A 0% balance transfer card is one of the best ways to consolidate debt if you have good or excellent credit (690 or more FICO FICO,
score). These cards charge 0% interest during a promotional period, sometimes up to 21 months, so if you transfer your debts to the card and pay them off during that period, you will pay zero interest. Some cards charge a balance transfer fee, typically 3% to 5% of the total transferred.

If you cannot opt ​​for a balance transfer card, a debt consolidation loan is another good option. These loans are available to borrowers across the spectrum of credit, but they charge interest, which is fixed over the life of the loan, so you will make the same payment each month.

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Contact a credit counseling agency. Finally, you don’t have to go it alone. Arevalo recommends looking for a reputable nonprofit credit counseling agency that can help you create a budget, negotiate with creditors, or introduce a debt management plan.

A debt management plan typically consolidates credit card debt at a lower interest rate and offers you a three- to five-year payment plan. You may be charged a start-up fee and a monthly fee for using this service.

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Jackie Veling writes for NerdWallet. Email: jveling@nerdwallet.com.

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