Swiping your credit card could be especially expensive this holiday season: Credit card interest rates hit their highest point in more than 20 years in August, according to the latest data from the Federal Reserve. The average annual percentage rate on credit card accounts reached 16.46%, the highest level since at least 1994.
These rates could lead to increased debt for people who don't pay off their credit card balances each month. Credit card interest rates have climbed much higher than rates for other loans, including 4-year auto loans (5%) or 2-year personal loans (10.1%). Interest rates tend to rise and fall based on the Federal Reserve benchmark rate, which has been slowing moving up in recent years.
Here's how to combat rising credit card interest rates.
Just like your cable bill, you can talk down your APR. Call your credit card company and talk up what a good customer you've been. If you make regular payments and you've held the card a long time, point that out.
Most of all, bring up the possibility of switching to another card. The issuer may budge on rates rather than lose you as a customer.
Read more about how to negotiate your way to a better budget.
2. Prioritize your payments
Lowering your rate helps, but if you have a credit card balance, that's the real problem. Interest rates don't matter if you have no debt. But paying it off might be intimidating.
A good way to start is by focusing on one card at a time. Some people like to prioritize paying off the card with the lowest balance first. Others like to tackle the card with the highest interest rate.
The former option, called the "snowball method," provides the psychological boost of knocking out balances quickly, while the latter, the "avalanche method," tends to be more cost-effective. Just making a plan to pay down your debt is a good start either way.
3. Make bigger payments
You'll never get out of debt by making minimum payments on your credit card. The more you can pay each month, the less interest you'll pay and the faster you'll clear your balance.
4. Get a balance transfer card
Balance transfer credit cards offer 0% introductory rates for a set period. This gives you time to pay off your credit card debt interest-free from 6 to 20 months, depending on the offer. Just be sure you can actually pay down the balance by the time the introductory period is over or you'll be saddled with high-interest credit card debt all over again.
How are you tackling credit card debt? Tell us in the comments.
Image: Beatrix Boros