The CFPB reports that the average household pays $1,000 in interest and credit card fees per year
Credit cards are one of the biggest sources of consumer debt, along with mortgages, student loans and car loans. But unlike other common forms of debt, credit cards usually come with high interest rates and high annual fees.
Between 2018 and 2020, Americans paid $120 billion in interest and credit card fees each year, according to Consumer Financial Protection Bureau (CFPB). That’s about $1,000 per household, which is a high price to pay for the convenience of credit card spending.
Worryingly, credit card debt is on the rise – revolving credit balances have fallen as consumers paid off credit card balances during the COVID-19 pandemic. But the stock of credit debt has reached pre-pandemic levels as Americans become increasingly dependent on credit cards.
Keep reading to learn how to save money on credit card interest and fees, including low interest credit cards and personal loans. You can compare interest rates on a variety of debt consolidation products on Credible for free without affecting your credit score.
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How to Reduce Credit Card Interest and Fees
Credit card interest can strain your household budget and make it harder to pay other bills, like housing and groceries. According to CFPB estimates, the average household pays more than $80 a month in interest and credit card fees, or about $1,000 a year.
Fortunately, there are several ways to reduce the amount of credit card interest charges and annual fees you pay. Learn more about each strategy in the sections below.
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Pay off your credit card balance in full each month
Maintaining a balance over multiple credit card billing cycles is a quick way to accrue interest. If you make the minimum payment on your credit card, interest will accrue even faster. But it’s possible to avoid paying interest entirely if you pay off your credit card statement in full by the payment due date.
Getting out of revolving credit card debt is easier said than done. However, there are a few strategies that can help you pay off your credit card debt each month:
- Track your income and expenses with a Monthly Budget. Then, only charge your credit card for the amount you know you can repay in a given month.
- Put the winnings on your credit card debt. If you get a bonus through work or even a high tax refund, be sure to put that money aside for debt repayment.
- Build an emergency fund. This can help you avoid incurring credit card debt to pay for unexpected expenses like car repairs or surprise medical bills.
You can start building your emergency fund by setting up direct deposit of your paycheck directly into a high-yield savings account that grows over time with interest. Visit Credible to compare high yield savings account rates at multiple banks at once.
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Switch to a credit card with a lower interest rate and no annual fee
The average credit card interest rate was 16.44% in the fourth quarter of 2021, according to the Federal Reserve. Credit card interest rates depend on on several factors, and they may vary from one credit card issuer to another. Some financial institutions offer low-interest credit cards that offer more competitive rates than some types of rewards credit cards.
Besides interest charges, many credit card issuers charge hefty annual fees between $95 and $495. Some annual fees may be attractive to consumers who use credit card rewards heavily to redeem travel credits, but the savings don’t always outweigh the annual fee.
However, there are many credit cards that do not come with an annual fee. If you’re paying annual credit card fees for an account you don’t use, consider switching to a card with no annual fee. You can browse all types of credit cards on Credible’s online financial marketplace for free.
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Consolidate credit card debt with a personal loan
Personal loans are lump sum fixed rate loans that are commonly used to consolidate high interest credit card debt. Debt consolidation loans offer lower interest rates than credit cards, and they are repaid in predictable monthly installments over a set period of time.
Paying off credit card debt with a personal loan can help you save hundreds or thousands of dollars over time. A recent analysis by Credible found that borrowers with good credit can potentially save up to $2,400 in interest charges by paying off credit card debt with a personal loan.
Personal loan rates are currently at record highs, according to Fed data, which means you may be able to save more money than ever while paying off your debt. Visit Credible to see personal loan rates right for you and use a personal loan calculator to estimate your monthly payment and potential interest savings.
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