Credit card interest rates are at the highest we’ve seen in 30 years.
And this week is the week maybe shoppers might be using credit cards. One in five holiday shoppers plan to take on credit card debt this season, according to a survey by Bankrate. Another survey done by Credit Karma found 69 percent of Americans plan to take on debt to cover costs this holiday season.
The average credit card interest rate has climbed to 19.14%, according to data from Bankrate.com
“With half of Americans living paycheck to paycheck already, this means that people are spending a lot more of their money on their interest on their debt, and a lot less of their money paying down their debt,” said Richard Franks, Head of Lightbox at Credit Karma. Credit Karma is a personal finance company.
Why is this happening?
The Federal Reserve increased interest rates in March in hopes of combating inflation. The central bank hopes this will slow the economy down.
“Balances on credit cards have gone up by 14 percent since interest rates started going up, and consumers are having trouble making their payment a lot more often than they were before,” said Franks.
If credit card interest, debt, and inflation are weighing on you this holiday season, experts have some tips.
“I think people get overwhelmed and don't know where to start. So the first simple thing is, figure out where to start. I think for a lot of people that means sitting down and looking at who you owe money to, how much you owe, what your interest rates are,” said Franks.
He also recommends budgeting.
“I like to start with something really simple. Let’s say, take half of your income and spend it on your needs. That's your rent, your utilities, things like that. Spend 30 percent on your wants, going out to dinner, going on vacation. That type of stuff. And then take 20 percent and use that to pay down debt, or to save,” he said.
Other tips include keeping your eye on your long-term goals rather than spending too much this holiday season, and shopping around for lower interest rates. You can also call your creditors and explain your situation. Franks said they may be able to lower your interest rates.
If you do have extra cash, Franks said now is also a good time to save.
“The flip side of all of this is that now is a great time to be saving. So for people that have a little bit of extra income coming in, interest rates on savings accounts are the highest they've been in a very long time.”