Americans with credit card debt face a double whammy.
First, there’s inflation. Prices on a broad basket of consumer goods are up 8.3% from this time last year, a figure that includes even larger hikes in the cost of food, shelter, gasoline and medical care.
At the same time, credit card rates are on the rise. In an effort to tame inflation, the Federal Reserve has embarked on a series of hikes to short-term interest rates, which has in turn pushed up the rates on credit cards. Run a balance on your card and you’ll have to pay it back at a rate of 18.1%, on average, according to Bankrate — the highest rate since 1996.
“All of this stuff is related,” says Ted Rossman, senior industry analyst at Bankrate. “Balances are going up because of inflation and because of some good stuff too, like unleashed demand for travel. Add in the highest interest rate in two decades and it’s a tough combination.”
The result: Americans now carry a near-record amount of credit card debt, with the average household owing $8,942, according to recent data from WalletHub.
For residents of some states, the average is even higher. Here are the 10 states with the highest average household credit card debt, according to WalletHub.
- Alaska: $11,277
- Hawai’i: $10,190
- Virginia: $9,176
- Maryland: $9,120
- Connecticut: $9,088
- New Jersey: $8,956
- Colorado: $8,906
- Georgia: $8,699
- Texas: $8,681
- Utah: $8,527
Alaska also leads the way for the biggest average increase to household debt in the second quarter of this year, with a bump of $770. Hawai’i ($696), Virginia ($627), Maryland ($623) and Connecticut ($621) round out the top five.
If you’re carrying a balance on your credit card, you’d be wise to make paying it down a top priority, says Rossman. “If you’re near the average rate of 18%, think of every dollar you spend on that debt as an 18% guaranteed risk-free, tax-free return on your investment,” he says.
The most straightforward way to find extra money to put toward your debt is to either spend less or earn more. But that’s easier said than done.
Beyond that, consider these three strategies to help ease the burden of paying down high-interest debt at a time when both expenses and rates are headed upward.
1. Sign up for a balance transfer credit card
Once you transfer your credit card balance to one of these cards, you’ll owe no interest for at least six months and up to 21 months. You can then use that 0% APR period to pay down your debt without interest charges.
The key to this strategy is to not make any purchases on the new card and focus solely on paying down debt, says Rossman. “Divide what you owe by the number of months with no interest,” he explains. “You could get out of debt in 21 months without interest, having just had to pay the upfront transfer fee.”
2. Get a low-rate personal loan
Depending on your credit score, you may be able to consolidate your debt under a personal loan, with banks currently offering interest rates as low as 5.73%. That’s not a walk in the park, but it’s a far cry from the 18% average you’ll pay to carry a balance on your credit card.
3. Use a credit counseling service
A non-profit credit counseling agency can help negotiate a lower rate on your debts and put you on a payment plan you can more easily afford. “If you have more than $5,000 in debt, these can be really beneficial,” says Rossman.
However, don’t confuse these services with debt settlement or debt consolidation firms, which often operate at a profit and employ practices that can tank your credit score. You can find a reputable credit counseling agency through the National Foundation for Credit Counseling’s agency finder tool.