Fed Rate Pause Fails to Alleviate Burden of Credit Card Debt for Americans

Americans collectively owe more than $1 trillion in credit card debt, despite the Federal Reserve halting interest rate hikes in September. This holds little relief for the average American struggling with mounting debt.

According to data from the Federal Reserve Bank of New York, credit card debt surged to over $1 trillion in the second quarter of 2023. Research by Annuity.org reveals that the average American carries more than $7,900 in credit card debt.

Making matters worse, interest rates on credit cards remain high, with the average APR standing at 20.68%, as reported by the Federal Reserve Bank of St. Louis. This marks an increase from 14.58% in August 2020.

To compound the situation, a survey by Quicken found that 38% of Americans expect to rely on credit cards for expenses they previously didn't need it for.

The NY Fed highlights that credit cards now account for the most prevalent form of household debt, with 70 million more credit card accounts open in 2023 compared to 2019 pre-pandemic levels.

As the US enters the presidential election season, a poll by Quinnipiac University reveals that over half of Americans view the economy as either poor or not so good. The economy is their top concern when choosing a president.

Quicken CEO, Eric Dunn, expresses concern over the widening economic divide, stating that many hard-working individuals are still financially struggling. Living paycheck to paycheck, they rely on credit cards they can't afford. Dunn emphasizes the importance of strong financial planning to break this cycle and narrow the gap.

Fortunately, there are several effective strategies to expedite debt repayment:

- Personal loans: By acquiring a personal loan with a lower interest rate, individuals burdened by high-interest debt can reduce their monthly payments. It is advisable to compare lending options on Credible without impacting your credit score. The average interest rate for personal loans is 11.48%, with rates as low as 5.2% based on credit scores.

- Balance-transfer cards: Transferring credit card debt to a card offering a zero interest grace period, usually lasting up to a year or longer, allows for the repayment of the transferred balance without accruing interest and fees. Prompt repayment within the grace period is crucial.

- Credit card payment strategy: Approaching debt strategically, individuals can employ either the snowball method (paying off debt with the smallest balance first) or the avalanche method (paying off debt with the highest balance first). Paying off the entire credit card balance each billing cycle is recommended to avoid excessive interest and fees.

If monthly payments and budget management become overwhelming, individuals can explore paying off high-interest debt, such as credit cards, with a personal loan. Consult with a personal loan expert on Credible for personalized guidance and answers to your questions.

While the Federal Reserve temporarily halted interest rate hikes, Chairman Jerome Powell warns that inflation remains above the target goal of 2%. This could result in further interest rate increases before the end of 2023.

Should the Fed adopt an aggressive stance on monetary policy, consumers may face significant financial challenges. Therefore, it is advisable to maintain balances within manageable limits, considering the possibility of future interest rate increases.

For those looking to eliminate high-interest debt, securing a personal loan at a lower interest rate can ease the burden of monthly payments. Credible provides a convenient platform to obtain personalized loan rates in minutes.

Despite the efforts of the Federal Reserve, inflation continues to impact families' ability to afford education expenses. Share your finance-related questions with Credible's Money Expert at moneyexpert@credible.com for a chance to have them addressed in our Money Expert column.