5 Strategies for Keeping Credit Card Balances in Check

Pre-Pandemic, credit card debt was a household stress point for many of us.  However, since March 2020 many people have learned to live within their means and reduce monthly credit card payment amounts by maintaining manageable balance levels.  One would think credit card companies would reward us by significantly lowering interest rates, but that is not the case. All of us are paying more interest than ever before.

If you’re carrying $5,000 at current rates of just over 16 percent, you’re paying about $67 a month in interest. That drain on your money gets in the way of everything else you want to do, including sleep soundly.

Before we talk about options you might have, let us make one important point: Don’t miss or delay minimum payments while you plot your strategy. Doing so will lower your credit score and take some of the best solutions off the table.

With that said, here are four distinct ways to work it now.

1. Transfer your balance.

Zero-interest-rate introductory balance transfer offers on cards were scarce in 2020, but more are arriving now, says Sara Rathner, a credit cards expert at the personal finance website NerdWallet. These cards typically charge as much as 5 percent of the transferred balance up front, so this works only if you get an introductory deal long enough for you to make a big dent in your balance. This spring, Rathner found, the U.S. Bank Visa Platinum card was offering one of the longest no-interest periods: 20 months. The Citi Double Cash card was offering 18 months at zero interest.

2. Ask for a break.

COVID has made card issuers more flexible. Since the beginning of 2020, roughly 83 percent of people who asked for a rate cut got it, LendingTree reports. Many issuers have had special programs for struggling cardholders, said Bruce McClary of the National Foundation for Credit Counseling (NFCC)*. He says to tell your lender that the coronavirus affected your finances and that you intend to keep up your payments and reduce your balances, but that more affordable terms would help. Your issuer might lower your interest rate for six to nine months, he says.

*We can personally attest to the great work of the NFCC. We have referred hundreds of clients over the years with great success.

3. Refinance with a personal loan.

Ask your credit union or bank if you can roll all your card debt into one lower-interest loan. The average rate on a two-year personal loan from a bank was under 10 percent at the end of 2020, according to the Federal Reserve. That may be a better deal than you can get from your card issuer. Don’t borrow against your home or your car to pay off your card; that creates a new risk of losing your possessions. And don’t grab at “debt consolidation loans” from companies you’ve never heard of. Chances are too high that they’ll load you up with new fees or, worse, scam you.

4. Get a workout plan.

One final way out is to create a payoff plan via a nonprofit credit counseling agency, which you can find through NFCC.org. At no cost, a counselor will go over your income and debts and determine what’s workable. Then the counselor will negotiate with your lenders, typically getting their buy-in on a payment plan that will lower your interest and monthly payments and maybe forgive some debt. If you reject the plan, you’re no worse off than you were before. Accept it, and you’ll start making one monthly payment to the counseling service, which will in turn pay the issuers. You’ll likely pay a small fee and give up the cards included in the plan. But over time you’ll be able to repay debt and rebuild credit. More importantly, you’ll be able to shed the burden and the worry of your debt.

5. Check Out Credit Karma

Credit Karma is a free service that provides members with various tools for every step of their financial journey. Some of their free tools include:

  • Credit Scores: Your VantageScore 3.0 credit scores as often as daily for TransUnion and weekly for Equifax 
  • Credit Reports: Your credit reports from TransUnion and Equifax, which include information on your payment history, credit limits and balances, and more. Credit Karma also provides insights into your credit reports about different factors that might influence your credit scores.
  • Credit Monitoring: Rest easy knowing that your TransUnion and Equifax credit reports are being monitored. With Credit Karma’s free credit monitoring, we’ll notify you if we notice important changes in your credit reports.
  • Identity Monitoring : We check to see whether your personal information shows up in another company’s public data breach or on the dark web. We’ll suggest things you can do to reduce your risk moving forward.
  • Unclaimed Money: Search for money that belongs to you that state governments might be holding.
  • Home Buying Power: Simulate how changes to factors like your down payment or monthly income could help you make progress towards your home buying goals.
  • Credit Karma Tax: You can use Credit Karma to help prepare and file your taxes for free.

Adapted from an original article by Linda Stern, AARP, June 10, 2021.