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5 ways to get rid of credit card debt before interest rates climb

Credit Card Delinquency
High inflation could lead to future rate hikes, so if you're carrying a credit card balance, you should take action now. Getty Images

There's no question that credit card usage is a major issue for many Americans in any economy due to the high rates that credit cards carry and how easily card debt can compound. But right now, the average credit card interest rate is closing in on a staggering 22%, making it even easier for credit card debt to become a major issue for borrowers. And, recent data indicates that credit card delinquencies climbing and maxed-out credit cards are common now — signaling that a serious credit card debt crisis could be on the horizon.

The current interest rate environment makes carrying credit card debt an even bigger risk than normal, though. For starters, the Federal Reserve's benchmark rate is paused at a two-decade high to try and slow inflation, which is keeping consumer borrowing rates elevated. And, while many experts expected Fed rate cuts to start mid-year, with inflation remaining stubbornly high, those forecasts have been pushed out. Some economists now believe the Fed may not cut rates at all this year. 

And, if inflation stays above the 2% target in the coming months, future rate hikes could even be in play. Such a scenario would cause credit card rates to rise even higher, which would further exacerbate the issue. So, if you're carrying a balance on your credit cards, it's crucial that you get rid of that debt now, in case rates climb even further in the future.  

Start exploring your credit card debt relief options here.

5 ways to get rid of credit card debt before interest rates climb

If you want to tackle your credit card debt before a potential interest rate increase, here are a few options you have for doing so:

Pursue credit card debt forgiveness with a debt settlement program

Debt settlement is one option you have for getting rid of your credit card debt before rates have the chance to climb. When you pursue debt settlement through a debt relief company, you'll make monthly payments to the debt relief company based on what you can afford to pay. That money is held in a special purpose account, and when enough has accrued, the debt relief firm will negotiate directly with your creditors to win approval for reduced payoff amounts on your balances. 

If the negotiations are successful, your credit card debt is settled for a reduced lump sum and paid from the special purpose account. But while debt settlement can lead to substantial debt reduction, it does have some significant downsides to consider. For example, it can severely impact your credit score, at least in the short term, and settled debt is treated as taxable income by the IRS. There are also fees tied to these programs.

Find out how the right debt relief company can help you today.

Consolidate your credit card debt into one loan

Consolidating multiple credit card balances into one new fixed payment at a lower interest rate is a way tackle your card debt before rates can climb. It's also a way to simplify your debt repayments and save on interest costs over time. You have a couple of options for debt consolidation, too: traditional debt consolidation loans and debt consolidation programs offered by debt relief companies.

Debt consolidation loans are a type of loan that is typically offered by banks, credit unions or online lenders, though you can use your home equity to consolidate debt, too. The money you borrow with this type of loan is used to pay off your credit cards, and then the loan is repaid directly to the lender over time. Debt consolidation programs work similarly, but you borrow the money through a lender partner of the debt relief company and then repay what you owe to the debt relief company over time.

The main benefit of this option is that the interest rates you pay are significantly lower than the typical credit card rate, making it more affordable to pay off what you owe. However, you'll need good credit to qualify for consolidation loans with the lowest possible interest rates. Borrowers with lower credit scores could still qualify, but they may have fewer options or be offered higher rates, mitigating some of the savings.

Use a debt management plan to lower your rates and fees

If you're struggling with unmanageable credit card debt and want to pay it off before future rate increases can occur, you may have a path to becoming debt-free through a debt management plan. With a debt management plan, the debt relief agency you work with will negotiate directly with credit card companies to reduce the interest rates on your cards and get waived fees and penalties.

You then make a single monthly payment to the debt relief agency, which distributes funds to your creditors over a multi-year payoff period until the debt is paid in full. While not as damaging as debt settlement, these programs can still negatively impact credit scores initially, and there are typically fees associated with them, too.

Utilize a credit card hardship program to get some relief

Most major credit card issuers offer in-house credit card hardship programs to help severely distressed borrowers regain their financial footing. These programs can provide various forms of temporary assistance such as reduced minimum payment requirements, waived fees, a reduced APR and other accommodations, so they may be worth inquiring about.

The goal of credit card hardship programs is to make minimum payments more affordable in the short term, allowing you to pay down your principal balances faster until your situation improves. Hardship assistance terms vary by issuer, though, and approval is discretionary based on your circumstances.

Work with a non-profit credit counseling agency on other solutions

Consulting with a non-profit credit counseling agency can help you understand all of your options and make an informed decision on how best to get rid of your card debt and avoid costly rate hikes in the future. The counselors with these programs can provide an objective analysis of your finances, recommend customized strategies, advise on budgeting and expenses and assist with creditor negotiations.

Or, if you simply need budgeting help to pay off debt themselves, a counselor can create affordable payoff plans tailored to your unique situation. So, there are lots of benefits to at least consulting with this type of agency, and credit counseling services may be low-cost or free for those who qualify.

The bottom line

With interest rates still elevated now that we're well into 2024 and economic conditions uncertain, taking decisive action now to address credit card debt is crucial, especially if you're looking to avoid falling deeper into the red. And, the sooner you enact a strategy to eliminate your card debt, the better insulated you will be from future rate hikes that could make payoff even harder. So, get started now with weighing your options and deciding which one could work best for you. 

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