Local Raymond James Financial Advisor Thomas F. Scanlon, CFP®, CPA of Manchester, CT quoted by CNBC.com on December 28, 2022.
5 tips to help you knock down those balances.
Slightly more than a third, or 35%, of shoppers took on debt this holiday season, down from 36% last year, according to a new survey from LendingTree. But the average debt borrowers took on climbed to $1,549 in 2022, a 24% increase from last year’s average of $1,249.
Most people — 63% — who took on debt were not planning to do so, up from 54% last year.
More than a third of shoppers — 37% — will take five months or longer to pay those balances off, up from 28% last year, LendingTree found.
The online survey was conducted between Dec. 16 and 19 and included 2,050 consumers ages 18 to 76.
“It’s not surprising, given that the cost of seemingly everything has risen by the day for the past year,” said Matt Schulz, chief credit analyst at LendingTree.
“But it’s really troubling, considering how high interest rates are and the fact that they’re only likely to continue to rise for the next few months,” he added.
Even in the best economic conditions, most people have a tiny financial margin for error, according to Schulz. With rampant inflation, that shrinks their financial wiggle room down to nothing, he said.
But there are five proactive steps you can take now to help whittle down those balances faster and reduce the total interest you pay as interest rates continue to climb.
“If you don’t do anything, that debt is only going to grow,” Schulz said.
1. Ask for a lower interest rate
The annual percentage rate — or APR — your credit card company charges you is not set in stone.
Oftentimes, it can be lowered simply by asking. About 70% of requests for lower credit card APRs are granted, according to a LendingTree survey from earlier this year.
But the key is you have to request a reduction, Schulz said.
2. Look for 0% balance transfer credit card offers
By transferring your outstanding credit card balance to a card offering a 0% introductory rate, you may be able to go a year or more without accruing interest on your balance, Schulz noted.
To be sure, you need to pay attention to the fine print, including any fees, limits and deadlines before you apply, he said.
“If you use a 0% balance transfer credit card wisely, it can be a really, really powerful tool against credit card debt,” Schulz said.
3. Consider a personal loan
Alternatively, a low interest personal loan may offer a lower interest rate than your current credit cards.
Personal loans typically won’t offer the 0% introductory interest rate balance transfer cards provide. But they will allow you to consolidate multiple types of debt into one loan, Schulz noted.
4. Pay attention to tax withholdings
5. Pare back your spending
As you’re focused on paying off your balances, it would be wise to put your credit cards “on ice,” or refrain from using them altogether, Scanlon said.
Even if you’re tempted to still charge for points or other rewards, it may not be worth it, he said. Interest charges easily eclipse the value of those rewards — especially at current rates.