With increasing credit card balances in the United States, you may want to rethink your credit card strategy ahead of a possible recession.
That’s because credit card debt is up 13% since last year, and that debt will only get more expensive as further interest rate hikes are expected later this year. Here’s a look at what you can do, as recommended to CNBC Make It by certified financial planners:
1. Pay off your credit card debt now
“This should be a top priority wherever we are in an economic cycle, but very important during times of high inflation and potential economic downturns,” says Kendall Clayborne, Certified Financial Planner at SoFi.
Indeed, outstanding balances tend to increase with increases in interest rates. Over the past few months, credit card interest rates have fallen from just over 16% to 17.42%, but could be closer to 19% by the end of the year, according to Ted Rossman, senior industry analyst at Bankrate.com.
2. Call your credit card company and ask for a lower rate
One of the easiest ways to reduce credit card fees is to simply call your credit card provider and ask for a lower interest rate. They might say no, but if you’ve been a loyal customer with an improving credit score, they might say yes.
To help you, quote credit card offers from competing companies if they come with lower interest rates than what you’re paying on your existing card. You can also ask them to waive your annual fee.
3. Consider a credit card balance transfer
A balance transfer is the transfer of debt from one credit card account to another for a lower interest rate.
Credit card companies typically offer 0% interest for an introductory period of up to 21 months. This means lower payments, at least for a while. But you will still need to make regular payments after the 0% introductory period expires.
Lately there are less 0% 21 month offers, but they can still be found. Just note that you generally need a good or excellent credit score to qualify and you may have to pay a balance transfer fee of around 3-5% of the total debt transferred.
4. Get a cashback card if you travel little
Travel card rewards usually have good redemption rates, but it might not be worth it if you don’t plan to travel much next year. Plus, they usually come with an annual fee.
If you want to make ends meet, a cash back rewards card might be a better option. These cards don’t have many perks, but they typically offer 2-5% cash back on spending on essential shopping categories like groceries or gas. These cards are a great way to offset some of the costs of inflation.