It is no secret that interest rates on credit cards are at record highs.
Let’s be honest for a minute: when you allow a balance to roll over month after month with 25% interest or more, it accumulates extremely quickly. Soon enough, the bank will be racking up substantial earnings from all the interest you are paying.
So, what can you do to avoid getting trapped in perpetual debt? In this post, we will explore some viable alternatives to those exorbitant-interest credit cards.
Personal loans, balance transfers—we will explain it all so you can protect your finances.
Here’s the deal: credit card interest rates have been climbing higher and higher over the past few years. According to CNBC, the average annual percentage rate (APR) hit a record of 22.8% at the end of 2023. That’s the highest it’s been since the Federal Reserve started tracking rates back in 1994.
Several factors are causing this jump. As the Fed raises rates to fight inflation, the prime rate that credit cards are pegged to also goes up. Card issuers are also taking advantage by widening their “spread”—that’s the margin between the prime rate and your APR. This means more profit for them.
For us regular people, the impact is real. Americans now owe more than $1 trillion in credit card debt, an all-time record high. The average balance people carry is also scary high at $6,569. With interest piling on daily, these giant balances get harder to pay off when rates are inflated.
Key Takeaway: Between Fed hikes and lenders getting greedy with wider profit margins, credit card rates are painfully high for consumers working to pay down balances.
Imagine you’ve got a $6,500 balance at 25% APR. That’s over $140 just in interest each month, or $1,680 per year.
As more of your monthly budget gets eaten up by interest, you’ve got less money to put toward the balance itself. This debt trap gets trickier to escape over time as the balance swells. Missed payments or maxing out your limit can also tank your credit score, making better rates hard to get later.
For folks already barely scraping by paycheck to paycheck, spike rates hit hardest. It gets really tough to keep up with payments when more income goes to interest rather than the principal balance. Excessive rates present a punishing barrier for those already struggling financially.
Key Takeaway: Carrying high-interest credit card debt makes it incredibly difficult to actually pay down balances, leading borrowers into a debt trap spiral. This hits lower-income folks already battling to pay bills.
Now, here comes the good part—the strategies to take control when credit card rates get out of hand.
Though cards offer perks like rewards and flexibility, high interest costs can cancel out those benefits. Looking at alternatives tailored to your money situation can save you a ton on what you pay in interest.
Some options worth considering:
Key Takeaway: The key is picking what fits your unique situation and debt payoff needs. Doing thorough research is a must since each option has different pros, cons, and eligibility requirements. Let’s look at two popular alternatives up close.
Personal loans allow you to borrow one lump sum and then pay it back in fixed monthly payments over a set timeframe. This can be great for consolidating multiple high-rate credit card balances and paying them off faster.
The best personal loans offer lower fixed interest rates compared to the average credit card APR. If you’ve got good credit, rates could be as low as 5–10%. Online lenders like Level Financing specialize in personal loans with easy online applications.
Paying off cards with a personal loan streamlines things since there’s just one monthly bill at a lower, fixed rate. However, you lose the flexibility to adjust the payment from month to month. If you need that flexibility or have unpredictable cash flow, a personal loan does carry risks.
Key Takeaway: Personal loans let you roll high-interest credit card debt into one fixed monthly payment at a lower rate, but you lose the ability to adjust payments as needed.
Another smart money move is to transfer balances to a card with an intro 0% APR for a promotional period. This temporary break lets you direct all payments toward the principal without racking up interest.
Certain cards allow balance transfers with no fee. You typically get 12–18 months to pay off your balance 100% interest-free before regular rates kick in. Just be sure to pay off the full amount before the promo ends to dodge deferred interest.
While powerful, balance transfers work best for those who know they can fully pay the transferred debt within the initial timeframe. If you can’t pay in full, deferred interest can add right back up again quickly. Most cards also charge a 3-5% balance transfer fee.
Key Takeaway: Balance transfer cards offer 0% intro APR windows to pay existing balances interest-free, but you must pay in full before the promo period ends.
Read More: All You Need to Know About Balance Transfer
If the alternatives above aren’t quite right for your situation, you still have a few other possibilities, too. One is tapping available home equity through a line of credit or cash-out mortgage refinance. This uses your home’s value to consolidate higher-rate debts. However, it does put your home at risk if you default. Talk to a financial advisor first about whether it’s wise in your case.
Nonprofit credit-counselor agencies are another helpful resource. They can review your options, negotiate with creditors, and develop a customized debt repayment plan. If unforeseen hardships cause your financial struggles, their guidance may provide some much-needed relief.
Sky-high and rising credit card rates create a heavy financial burden for many people today. But don’t abandon hope just yet! Taking time to explore alternatives tailored to your unique situation can help you regain control.
It doesn’t matter if you take a personal loan, balance transfer, or other strategy; opening your eyes to choices beyond traditional credit cards is so important.