Paying off your credit card debt is a good solution for the new year

The average credit card interest rate in mid-December was 19.42%, the highest rate since 1992. As the Federal Reserve continues to raise short-term interest rates to stifle inflation, average rates could rise even higher, says Ted Rossman, Credit Card Analyzer’s Bankrate.comwhich tracks interest rates on consumer loans.

It is not uncommon for consumers who are struggling to pay their bills to make the minimum payment on their credit cards. But over time, paying the minimum will add thousands of dollars to the amount you owe.

The average amount owed by cardholders with a balance is $6,569, according to an analysis by LendingTree, an online loan marketplace. If you carry a balance of that amount, your interest rate is 18%, you only pay the minimum of $165 per month, it will take you five years to pay off the debt, and your payments will total $10,000. (You can solve your numbers using Experian’s Credit Card Yield Calculator.)

If you have good to excellent credit, one option is to apply for a balance transfer card with a 0% introductory rate. Wells Fargo, Bank of America, and Citibank offer 0% balance transfer cards for up to 21 months, Rossman says. Most of them charge a transfer fee of 3% to 5% of the balance.

Once the introductory period ends, the interest rate will go up to the card’s regular rate, which may be higher than the rate you were paying before the balance transfer. Ideally, you should try to pay off most or all of your balance before this happens. Divide the amount you owe by the number of months in the balance transfer period to get an idea of ​​how much you should try to pay each month. Resist the temptation to add to your credit card debt, even if you get offers with 0% interest on new purchases, Rossman says.

If you own a home, another option is to use a home equity line of credit to pay off your credit cards. The average rate for a home equity line of credit is 7.3%, according to Bankrate.comYou usually have up to 20 years to pay off the loan.

But before you borrow against your home, make sure you can make the payments if the economy is going south, says credit expert Jerry Dettweiler. “If you’re late with payments, you put your home at risk.”