Credit Card Balances Are Up 15% From a Year Ago. Here's How to Pay Yours Off ASAP

It's not surprising news, but it's also pretty unsettling.

American consumers aren't exactly strangers to debt. Many households carry debt of some form, whether it's a mortgage, auto loan, or personal loan.

Fixed-rate loans can be hard enough to pay off in their own right. But credit card debt can pose an even greater challenge.

The problem with credit card debt is threefold. First, credit cards tend to charge exorbitant amounts of interest -- much more than the typical rate on a mortgage or car loan, for example. Secondly, credit card interest rates can vary and also climb over time, making it even harder for consumers to keep up with their minimum monthly payments.

Finally, too much credit card debt can actually result in credit score damage. And once that happens, it can kickstart a vicious cycle where it becomes more difficult to borrow money in an affordable manner.

Meanwhile, U.S. credit card debt increased quite a bit during the third quarter of 2022. And if that pattern continues, consumers could be in for a world of financial upheaval.

Credit card balances are up

U.S. credit card debt rose by $38 billion last quarter compared to the second quarter of 2022, according to a recent report from the Federal Reserve Bank of New York. And as of the end of September, credit card balances were 15% higher than they were a year ago.

What makes this data particularly troublesome is that the Federal Reserve has been aggressively raising interest rates in an attempt to slow the pace of inflation and bring down the general cost of living. So consumers who took on additional credit card debt this past quarter could see the interest rate on their balances creep upward.

Now given that inflation has been driving up living costs left and right, it's easy to see why so many credit card balances increased. But that doesn't change the predicament that consumers with credit card debt now find themselves in.

How to pay off your credit card debt

If you added to your credit card debt recently, it's in your best financial interest to pay it off as quickly as you can. And one strategy you might employ in that regard is a balance transfer.

If you have decent credit, you might qualify for an offer to move your existing credit card balances onto a new card with a 0% introductory interest rate. That could give you a temporary reprieve from accruing interest while you work to chip away at your balance.

Another option to look at is taking out a personal loan, using the proceeds to pay off your credit cards, and then paying off that loan over time. Personal loans tend to come with lower interest rates than credit cards. Plus, you'll get the benefit of a fixed-rate loan and predictable monthly payments. But as is the case with a balance transfer, this option works best if you have a decent credit score. A lower score could result in a higher borrowing rate.

Credit card debt is a particularly scary thing to have right now. If yours has increased, do what you can to eliminate it as quickly as possible.