Credit Card Debt: America’s Biggest Battle?
Many Americans have problems with credit card debts. Although the mortgage interest and the interest on car loans are close to historic lows, the credit cards are not. Why?
If you understand the reasons behind the inequality, this is the first step to solve the problem for you as a credit card holder. A strategy to deal with the debt follows.
Credit card debt: Economics & Interest Rates
Interest rates for mortgages and car loans are linked to the interest on treasury paper. As more and more nervous investors – influenced by Brexit and other factors – attract bonds, the yield and thus the mortgage interest rate falls.
The correlation between the interest rate on government bonds and the fixed mortgage interest rate is even stronger than that of other consumer products, according to Bankrate’s financial analyst, Greg McBride.
Credit card interest on the other hand is influenced by the federal funds rate, which was increased by 25% in December. The rate has not been moved since. See Why are credit cards able to charge such high interest rates compared to other lenders?
Other reasons why interest rates remain high
Three additional factors affect credit card interest rates that do not apply to mortgages and auto loans, according to Bankrate. These are:
- Unsecured Debt – Credit card debt is unsecured, which means that if the default setting is, the card issuer has no seizure. Higher interest rates are a consideration for the additional risk that the issuer takes.
- The CARD Law – In 2009, legislation known as the Credit Card Responsibility, Responsibility and Disclosure (Act) was passed and became law. This legislation took lucrative revenue streams away from card issuers, which focused on higher interest rates to make up for the deficit.
- Credit scores – A higher risk requires stronger control. Simply put, the lower your FICO score, the higher your credit card interest rate.
7 ways to fight back
You don’t have to take high interest rates for granted. You can use one or more of a number of strategies to reduce the interest you pay on credit cards.
Some relate to working with your current credit card company; involve others on a new card; Still others involve more drastic ways to manage your debt.
1. Target one card at a time
If you have multiple credit cards, pay the minimum amount owed on all cards and pay more at the credit card with the highest interest until that card is paid off. Then start with the next one in the list.
Request for an interest rate cut and / or waive the annual fee. If you are rejected, you risk transferring your balance. If that does not work, transfer the balance to a card with a lower interest rate.
3. Transfer balances
If you decide to transfer the balance or part of the balance from one card to another, bear in mind that there may be costs for a balance transfer from as much as 3% to 5%. Factor that into your calculations and make sure the general savings work to your advantage.
4. Search for a new card
If your transfer strategy relates to searching for a new card, find a delay period (usually 20-25 days). That way, as soon as you have paid the balance, you have room before the future interest starts.
Find a new card by using an oWertherine credit card search like the one on Nerdwallet.
5. Secure the debt
If other measures are not sufficient, you can convert unsecured (more expensive) credit card debt into a secured debt via a home equity credit line (HELOC). As a bonus, interest payments on wooWertherasten are generally tax deductible.
Note, however, the closing costs and be aware that you endanger your house if you switch on as standard.
6. Improve your credit score
Because your credit score (FICO) plays an important role in credit card interest, everything you can do to increase your FICO score can help enormously. Bill McCracken, president of financial services research firm, Synergistics Research Corp., says that a FICO score above 720 gives you an interest rate of 10-15%, while an interest between 620 and 680 raises that percentage to more than 20%.
See for more
a quick way to increase your credit score . 7. Submit a complaint
If you find that your credit card company has violated the CARD Act or otherwise uses unfair practices, consider filing a complaint with the Consumer Financial Protection Bureau (CFPB).
The CFPB is responsible for protecting consumers against financial fraud and abuse. So far, the agency has earned back nearly $ 11 billion for consumers. Consult for more information
When, why and how to submit a complaint with the CFPB . Will there be alternative help?
Mike Cagney, with alternative oWertherine lender Social Finance Inc. (SoFi), oWertherangs said that his company could request approval for a charter for state-owned banks in Utah. If Cagney were to implement this, SoFi, known for its excellent personal service and low interest rates, would have quick access to credit card activities.
It is important that this step can put banks under pressure to compete with lower rates – a real plus for consumers everywhere.
The bottom line
Getting out of credit card debt is not easy. It requires discipline and attention to detail. However, it is possible to reduce both the interest rates and the interest that you pay on credit card accounts.
Agencies such as the CFPB and companies such as SoFi believe that credit card interest rates can and should be reasonable. In the meantime, due diligence is the name of the game.