Is It Time to Ditch Your Credit Card?

There sure is a lot of interest in interest rates these days.

As the Covid-19 pandemic spread throughout the world and economic activity grounded to a halt, many Central Banks slashed interest rates and governments began to issue trillions of dollars in stimulus to ward off recession and economic pain. In the United States, the Federal Funds rate was cut to 0% and roughly $5 trillion in stimulus payments were issued. Now that the worst of the pandemic is behind us, we are facing another threat: Inflation at a 40-year high.

In an effort to bring down inflation, the Federal Reserve began to raise rates in March of 2022. First, a .25% increase, followed by a half point in May and two increases of .75% in June and July. As inflation remains stubbornly high and rates continue to rise, many Americans are beginning to feel the impact on their credit card bills. According to a recent survey by Bankrate.com, the average credit card interest rate hit 18% in early September 2022, the highest rate seen in 26 years. With rates expected to continue rising over the next year, is now the time to ditch your old credit card?

If you tend to carry a balance each month, you might consider moving to a balance transfer card at 0%. Many credit card companies are still offering balance transfers at 0% interest for 18 months for new customers, possibly saving you thousands of dollars each year while you work on paying down the balance.

Another move to consider might seem counterintuitive, but it could make sense to use your credit card for purchases each month if you have a cash back card. Moving purchases from your debit card to a credit card offering 2-3% cash back could help to reduce the extra costs imposed by inflation. For example, with inflation current at 8%, a card offering 3% cash back could help to reduce the cost of inflation by more than a third. However, it is extremely important that you don't squander your potential savings by carrying a balance each month.

If you do not have a cash back credit card and don't want to open another account, you could always call your credit card company and ask for a rate reduction. It's important to be prepared with information such as your APR, current balance, and statement due date, as well as competitors' information and offers. If you have kept up with payments and have a long history with your credit card issuer, they might lower your rate just to retain the business. In the end, the worst they can say is "no" and it doesn't cost you anything to ask.

With rates expected to continue increasing at a historic pace, NOW is the time to act and reduce your monthly credit card payments. If you are feeling the impact of inflation and carrying a credit card balance each month then there really is no time to waste.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!